The costs associated with moving from one residence to another can accumulate rapidly. Even if you undertake most of the tasks yourself, these expenses can total thousands of dollars for numerous households. Depending on the company you hire, they could further escalate the costs. As this expense is quite significant, many individuals may question whether it is possible to claim moving expenses as a tax deduction. Although most households can no longer deduct moving expenses from their taxes since 2018, a few states still permit this deduction. OneRelo Worldwide recommends that you consult with a financial advisor to properly plan for potential tax deductions to possibly limit your tax liability.
Some items to discuss with your financial advisor may include:
- Moving personal property and household goods: Expenses connected with moving your personal possessions and household goods, such as transporting a trailer, packing, crating, storage in transit, and insurance, can be claimed as eligible moving expenses. Nevertheless, any costs related to purchasing items during the move to your new home are typically not tax-deductible.
- Insuring and storing your items: Just because your items have arrived in your new city, it does not necessarily mean that you or your new home is ready to receive them. You may be able to claim a deduction for the expenses incurred in storing and insuring your items for a maximum of 30 consecutive days after they are moved from your previous home and
- Travel expenses: You may be able to claim a tax deduction for travel expenses incurred when moving from your old city to your new one. This might include airfare, lodging, and car expenses. Nevertheless, expenses on meals while traveling between cities are typically not tax-deductible. When it comes to car expenses, you can either claim the actual out-of-pocket expenses, such as gas and oil, or opt to use the standard mileage rate of .16 cents per mile.
If you live in an eligible state, the IRS says that three requirements must be met:
Closely Related to Starting Work: To meet the IRS condition of being “closely related to starting work,” you have a timeframe of one year from the date you relocated to the first time you reported to work at your new job. For example, if you moved from City A to City B on August 10 and started working on October 20, you would meet the condition since you began working two months after your move. The sequence of events does not matter; if you started working on June 1 in City B and moved your possessions from City A to City B on September 1, you would still meet the condition because you moved within one year of reporting to work at your new job location.
As per the IRS, moving expenses refer to the expenses incurred when you move to a new location for a new job. They can be claimed as tax deductions if they are essential and rational expenses for moving yourself, your family, and your belongings.
The Distance Test: To meet the distance test, the IRS requires that the distance between your new job location and your old home must be greater than 50 miles, compared to the distance between your former workplace and old residence. For example, if your old home was 20 miles away from your former workplace, your new job location should be at least 70 miles away from your old residence. If you did not have a previous workplace, your new job location must be at least 50 miles farther from your former home. If the distance is less than 50 miles, you need to provide evidence to the IRS that the relocation was necessary for your line of work, and that a closer residence would result in more savings in terms of time and money.
The Time Test: To meet the time test requirement set by the IRS, you must work full-time for more than 39 weeks during the first year of residing at your new home. These weeks do not have to be consecutive, and you are not required to work for the same employer. The only stipulation is that you must remain within the same commuting area.
For self-employed individuals, the time frame is extended to two years, which means you must work full-time for more than 78 weeks during the first two years after your move.
It’s worth noting that married couples filing their tax returns jointly are still required to meet these tests individually. For example, one spouse can satisfy the distance test, while the other fulfills the time test. However, combining your time together to meet the time test is not permitted. One of you must work for more than 39 weeks in the first year, or 78 weeks in the first two years if you’re self-employed.
Regrettably, not all expenses incurred during a move are eligible for tax deductions. These nondeductible expenses cannot be claimed. Although there are various types, some examples include breaking a lease, security deposits, losses from terminating club memberships, and car tags.
Impact of the Tax Cuts and Jobs Act of 2017
Until 2018, households that met certain criteria could claim tax deductions for some or all of their moving expenses. However, following the enactment of the Tax Cuts and Jobs Act of 2017, this deduction was restricted to only military families. Nevertheless, a few states still permit qualified households to claim deductions for moving expenses from their state tax obligation. In the past, taxpayers could claim moving expenses as above-the-line deductions, allowing them to reduce their taxable income without itemizing their deductions. However, the Tax Cuts and Jobs Act (TCJA) suspended this deduction, leaving only two options to recoup moving costs: for active duty military members and those who moved in 2017 and qualified. Military personnel can deduct moving expenses for Permanent Change of Station (PCS) or deployment orders. This includes moving from one permanent post of duty to another, from home to the first-ever post of duty, or from a previous post of duty to home or a nearer point in the country, provided the move happened within one year of ceasing active duty. To claim the deduction, members of the armed forces must use Form 3903 and report expenses on lines 1 (storage and shipping), 2 (traveling, lodging, and gas), and 4 (employer reimbursements). Separate Form 3903s can be used for multiple moves if the taxpayer meets the IRS qualifications. Spouses and dependents of imprisoned, deceased, or deserted military personnel can also qualify for the deduction.
How About Moving Expense Reimbursements?
In case your employer reimburses your moving expenses, your deduction is capped to the amount you spend beyond the reimbursement. If your moving expenses are lower than the reimbursement, then you cannot claim any deduction. For instance, if your move costs $10,000 and your employer reimburses $8,000, the maximum deduction you can claim is $2,000.
Despite the federal government suspending the moving expenses write-off in 2017, some states still permit taxpayers to claim the deduction when they file their state tax returns. Among these states are Arkansas, New Jersey, New York, California, Hawaii, Massachusetts, and Pennsylvania. However, the rules in each state differ. For instance, New York still permits the relocation expense tax deduction and eliminates reimbursements for moving expenses from income in state returns. It’s crucial to seek advice from a tax advisor to grasp the rules and regulations in your state, as they frequently change.
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Once you’ve figured out your finances and you’re ready to get started with your move, get in touch with OneRelo Worldwide or ask about a virtual survey to get a better idea of your moving costs. We look forward to creating your personalized moving plan for an easy relocation experience!