Moving Expense Deductions
Unreimbursed moving expenses to a new full-time job or to a new location for the same job are generally deductible if they meet the 50 mile distance test and the 39 week or 78 week work test for remaining in the new location. However, the work test requirement does not have to be fulfilled to take the deduction by the due filing date. The moving expense deduction is claimed as an adjustment from gross income, so it can be claimed even if the taxpayer does not itemize deductions. The deduction can also be claimed by people who were working only part-time or were unemployed and subsequently moved to a different location for a full-time job. Members of the Armed Forces can deduct the cost of moving their family overseas.
Under the new tax package passed by the Republicans at the end of 2017, known as the Tax Cuts and Jobs Act, moving expenses, will no longer be deductible for tax years 2018 through 2025, except for members of the military. Additionally, employer-provided expense reimbursements are no longer excludable from income, except for those in the military.
Each member of the family can deduct traveling costs, including one day of lodging before departure and after arrival. Vehicle expenses can be deducted by either deducting the actual costs of gas, oil, and even repairs, but not depreciation, or the taxpayer can use the standard mileage rate, which is less than the mileage rate for business because it does not include the depreciation portion.
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Parking fees and tolls are also deductible. However, meals are not deductible as a moving expense.
Other costs that can be deducted include packing and transporting furniture and other household items, the cost of insuring the items, and for the storage of household goods for up to 30 consecutive days. Connecting and disconnecting utilities for household appliances are also deductible. Moving personal items from a place other than the home to the new location is also deductible, but only up to what it would have cost if the items were relocated from the home.
Moving expenses may be deductible even if the family moves up to one year later. If the spouse getting the new job moves to the new location for the new job, but the family stays behind, then their expenses will be deductible even if they move later, after more than one year, which is sometimes done, for instance, so that the children can finish their education at their old schools.
The following are nondeductible moving expenses: travel for domestic help, any losses incurred because of the move, such as club membership fees, mortgage penalties, forfeited tuition, and any expenses related to selling the old house; the cost of transporting new furniture that was bought while moving to the new place, house-hunting trips that were undertaken to find a new residence, temporary living expenses, and any expenses in selling the old residence or buying the new residence. Any expenses reimbursed by an employer are includable in the income of the taxpayer.
To be deductible, the following distance test, using the shortest distance using common routes, must be satisfied:
Old Home to New Job Location Distance – Old Home to Old Job Location Distance ≥ 50 Miles
Example: Your old job is located 15 miles from your old house. Therefore, your moving expenses are only deductible if the new job location is at least 15 + 50 = 65 miles from your old house.
If the taxpayer did not have a previous job, worked part-time, or was unemployed, then the new job location must be at least 50 miles from the old residence. The distance and time test does not have to be met by members of the Armed Forces if their move is to a permanent change of station (Form 3903 instructions). The moving expense deduction is also available to people moving from the United States or its possessions to a foreign country, or vice versa, and is also available to aliens who are not United States citizens.
39 Week Test for Employees
If the distance test is met, then the taxpayer who is an employee must also satisfy the 39 week test, which requires that the employee maintain a full-time job in the general area for at least 39 weeks in the 1st year in the area. If the employee quits or is fired for willful misconduct, then the employee must obtain another full-time job to meet the 39 week test requirement. Mandatory retirement does not waive this requirement if the taxpayer anticipated the retirement. However, any temporary absence that was due to illness, strikes, shutouts, layoffs, or natural disasters is counted toward the 39 week requirement for full-time employment. The 39 week test does not apply if the taxpayer loses his job through no fault of his own, or becomes disabled or dies. Off-season weeks also account for seasonal work if the off-season period is less than 6 months and an employment agreement covers the off-season. The 39 week period is also satisfied if the employee is transferred out of the area for the employer's benefit, but it is not satisfied if the employee initiated the transfer.
For joint filers, either spouse individually must satisfy the 39 week requirement.
78 Week Test for the Self-Employed and Partners
The self-employed must work at least 78 weeks during the 2 years immediately following the arrival at the new location, and at least 39 weeks must be in the 1st 12 months. The self-employed are considered to have the same employment if the self-employed set up shop so that work can begin.
If the employee becomes self-employed, then the 78 week test must be satisfied, but the time spent as an employee is counted toward the 78 weeks. However, if you self-employed person the Cubs employee, then the taxpayer must work the full 39 weeks as an employee, and if it is not done within the 1st 12 months, then the 78 week test must still be satisfied.
Joint filers can deduct moving expenses if either spouse satisfies the time test.
Claiming Deductible Moving Expenses
Form 3903, Moving Expenses is used to report unreimbursed moving expenses and employer reimbursements. If employer reimbursements are greater than the taxpayer's deductible moving expenses, then no deduction is allowed and the excess amount must be added to total employee compensation. This will be shown in Box 12, identified as Code P, on the employee's Form W-2, Wage and Tax Statement. Note that nondeductible moving expenses cannot be used in the following calculation:
- If Deductible Moving Expenses > Employer Reimbursements, then
- Moving Expense Deduction = Deductible Moving Expenses – Employer Reimbursements
- Addition to Wages = Employer Reimbursements – Deductible Moving Expenses
The moving expense deduction can be claimed even if the time tests have not been met. However, if the taxpayer does not satisfy the time tests subsequently, then the deduction must be claimed as income in the next tax year or the taxpayer must file an amended return. Alternatively, the taxpayer can also file an amended return after the time test is completed to claim the deduction.
Generally, deductible moving expenses that are reimbursed by an employer under an accountable plan, are not reported as salary or wages, nor are qualified moving expenses paid to a third-party such as a moving company. However, any reimbursements for expenses that are ordinarily not deductible, such as meal expenses, must be reported as compensation. Deductible expenses that exceed nontaxable reimbursements are reported on Form 3903. If the taxpayer receives reimbursement after claiming the deduction, then reimbursements are reported as compensation. The taxpayer may also elect the to delay claiming any deductions until she is reimbursed by her employer, in which case, the taxpayer can deduct the total of the prior and current year deductions that exceed the nontaxable reimbursement in the current tax year.