Are you moving to a new home or planning a move in the near future? If you are, you should be aware of the tax rules for moving expenses. In some cases, moving expenses are fully or partially deductible, but other times they are not.
Starting point: You may deduct moving expenses only if you switch jobs or get a new position. In other words, you cannot deduct expenses simply because you decided to get a bigger place or relocate to a nicer area. Assuming that the move is job-related, you still must pass this two-part test to qualify for deductions.
Part 1: The new job location must be at least 50 miles farther from your old home than your old job was. For this purpose, the most commonly traveled route generally measures the distance between two points.
For example, say that Mr. Smith works for XYZ Co. XYZ is transferring Smith from its Northtown office to a similar position in Southtown. Previously, Smith lived five miles from his job in Northtown. But his new job location in Southtown is 45 miles from his old house. Since Smith’s new job is only 40 miles farther from his old home than the old job, he cannot deduct his moving expenses.
Part 2: If you are an employee, you must work full time for at least 39 weeks during the first 12 months after you arrive in the general area of the new job. Note: You do not have to work for the same employer, as long as the 39-week test is satisfied. If you are self-employed, you must work full time for (1) at least 39 weeks during the first 12 months and (2) a total of at least 78 weeks during the first 24 months after you arrive in the general area.
Be aware that there are several key exceptions to this second part of the test. For instance, the time requirement does not have to be met if you are in the armed forces and you moved due to a change of station; your main job was outside the United States and you moved to the United States because you retired; you are the survivor of a person whose main job location was outside the United States; your job at the new location ends because of death or disability; or you are transferred for your employer’s benefit or you are laid off for a reason other than willful misconduct.
In general, you may deduct the “direct” expenses of moving to a new home. This includes the cost of transferring household goods and personal effects (e.g., furniture, appliances and car) and your traveling expenses during the move. If you travel by car, you can keep track of the exact amount of your expenses or deduct a flat rate (plus related parking fees and tolls). The IRS recently announced that the flat rate for 2014 is 23.5 cents per mile (down from 24 cents per mile in 2013).
Note, however, that deductions are not allowed for “indirect” moving expenses. These include, but are not limited to, the following:
- Pre-move house-hunting trips
- Temporary living expenses
- Attorney’s fees and real estate commissions related to the move
Final point: Moving expenses are deductible on your personal tax return before you determine your adjusted gross income (AGI). As a result, they are not subject to the “Pease rule” reducing itemized deductions for upper-income taxpayers. In addition, deductions used to arrive at AGI may further lower your overall tax bill.