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08 April 2016

Readers should be aware the tax law signed by the President on 22 December 2017 dramatically changed the applicability of this article. Most of these rules have changed or are obsolete. I have decided to leave it here for consistency and posterity.

virginia beach tax prep military moving deductionMoving expenses, under certain circumstances, can be taken as an adjustment to income. Adjustments are my favorite variety of deductions, because you can use them even when you don't have enough other deductions to itemize - AND - adjustments lower your adjusted gross income, which may make you eligible for additional tax breaks.

The IRS refers to the adjustment for moving expenses as a deduction, so in order to keep things simple I will also refer to it as a deduction. Just be aware that this is an above-the-line deduction, so it does not go on Schedule A. It goes right on form 1040 in the adjustments section of the tax return. 

You can deduct the unreimbursed costs of a move if it was work-related and you were not paid additional money by your employer to cover your costs for moving. By work-related the IRS means you moved in order to take a new full-time job in another location. It is not necessary to have the job before you move. It is just necessary that you start working once you get to the new location. In order to meet the IRS requirements to qualify for the moving expense deduction there are two tests, one for distance and one for time.

The Distance Test is simple, although when you first read the definition you can get lost in the words. The IRS writes, “Your move will meet the distance test if your new main job location is at least 50 miles farther from your former home than your old main job location was from your former home.” In other words, if staying in your home when you take a new job adds 50 miles to your commute, you can move and write off the unreimbursed expenses for the move.

Moves are often much farther than 50 miles, but it is not uncommon here in Hampton Roads for someone to be living on the peninsula, take a job in Virginia Beach or Chesapeake, and decide to relocate to avoid dealing with the bridge-tunnels every day. That’s when we have to break out the IRS rules and get very specific on the distances to see if your move qualifies. If you moved from Florida or Texas to Virginia, it’s a slam dunk.

The second part of the test is the Time Test. The time test is different depending on whether you are an employee or self-employed. Employees must work full time for at least 39 weeks of the first year after the move. If you move and start your own business (self-employment) you must work full time at least 78 weeks of the first two years, including 39 weeks in the first year. If you are married and file jointly only one of the spouses must meet the time test.

What if you moved in December? You have to file your tax return by April. Can you still deduct the moving expenses even though you have not yet met the 39-week time test? The IRS actually allows this. You can project that you will eventually meet the time test and take the deduction for moving expenses. However, if you subsequently fail to meet the time test you have to pay the IRS back by either amending your prior return or including the previous deduction as income on your next tax return. (The IRS makes exceptions to the time test in certain situations. See if you qualify for an exception before you pay back the moving deduction.)

Everyone is different, and unusual situations result. For example, a parent might relocate to take another job, and leave his or her spouse and children at their old house for several months to finish school before they also move. The IRS says that as long as the move happens within a year of the start of the new job it is deductible. Similar to the pirate’s code, though, this is more of a guideline than a rule. If you have extenuating circumstances as to why the move could not happen within a year of the start of the new job, then you can apply to the IRS to allow your moving expenses even if they happen more than a year after the new job starts.

What is Deductible?

You can deduct the cost of shipping your household goods and the costs of travel.

Household goods shipments include your personal property and effects, including pets. You can have a moving company transport your goods or you can rent a truck and move them yourself. You can also deduct the cost of storing and insuring your household goods for up to 30 consecutive days during the move.

Deductible travel expenses include lodging and transportation. Meals are not deductible as a moving expense. Lodging is typically hotels and motels, and can include nights spent in a hotel near your previous home because your household goods were in transit.

Transportation can be tricky. If you take your own vehicle, which is common, you can deduct the actual expenses for gas and oil OR you can take a deduction based on mileage. The 2015 rate is 23 cents per mile. If you have more than one car you can deduct the cost of driving each one as long as it was driven by someone who is a member of your household. Just be careful that you are only deducting the expenses for each member of the household one time. A person might make multiple trips from the old home to the new home, but you only get to deduct one of those trips from your taxes as a move.

Whether you use the mileage deduction or the actual gas and oil expenses you can also deduct any fees for parking or tolls that you paid along the route. You may not deduct expenses for repairs, insurance, or depreciation.

Some things the IRS specifically points out as NOT deductible include improvements to your home, car tags, house hunting expenses, return trips to the former residence, losses on your former residence, fees for breaking your lease, and security deposits.

Moving can be an exciting, but hectic time. There are always hundreds of things to do when you move. Just don’t forget to keep track your moving expenses. You’ll wish you had at tax time! If you have any questions about deducting moving expenses from your tax, please contact me.

Disclaimer

Information in the Tax Blog is current as of the day it was posted. Tax laws change frequently, and it is likely that as time passes acts of Government will make some of the older blog content out of date.

The information provided is for education purposes only. It is general in nature and may not pertain to the Reader's situation. Every taxpayer's circumstances are unique. Reader's are urged to do some research or talk to a tax professional before acting on any of the information posted in this blog.

Paul D. Allen is a proud member of the National Association of Enrolled Agents, the National Association of Tax Professionals the Financial Planning Association of Hampton Roads, the National Association of Personal Financial Advisors (NAPFA), and The Tidewater Real Estate Investors Group. You can read more about Paul's background here.

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Common Acronyms

ACTC - Additional Child Tax Credit

AGI - Adjusted Gross Income

AMT - Alternative Minimum Tax

APTC - Advanced Premium Tax Credit

AOC - American Opportunity Credit

CTC- Child Tax Credit

EIC - Earned Income Credit

HoH - Head of Household

LLC - Lifetime Learning Credit

MFJ - Married Filing Jointly

MFS - Married Filing Separately

MAGI - Modified Adjusted Gross Income

PIM - Plan of Intended Movement

PTC - Premium Tax Credit

QC - Qualifying Child

QHEE - Qualifying Higher Education Expenses

QR - Qualifying Relative

QW - Qualifying Widow(er)

 

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