If you move for work-related reasons, you may be allowed to deduct some expenses on page 1 of Form 1040. Page 1 treatment is good, because you don't have to itemize to reap a tax-saving benefit. Here's what you need to know.
The Internal Revenue Code sets up two tests for moving expenses. You must pass both to claim a deduction.
The 50-Mile Test
The distance between your former home and your new job location must be at least 50 miles greater than the distance between your former home and your old job location. Oddly enough, the location of your new home does not even enter into the equation. Go figure.
Anyway, when attempting to pass the 50-mile test, please understand that you don't need to actually change jobs. For instance, your existing job might get transferred to a new location that's farther away from your old home.
Example 1: Your former home was 10 miles away from your old office location. Your former home is 45 miles away from your new office. You fail the 50-mile test. So you can't deduct any moving expenses. Sorry about that.
Example 2: Your former home was 10 miles from your old office. Your former home is 65 miles away from your new office. Since the difference is 55 miles, you pass the 50-mile test with five miles to spare. So far, so good.
The 39-Week Test
The second test generally requires you to be employed full-time in the area of your new job location for at least 39 weeks during the 12 months after you make the move. The purpose of this test is to disallow moving-expense deductions for folks who move for a change in scenery rather than for work-related reasons.
If you've reentered the full-time work force, you can claim a moving-expense deduction if your former residence and the job location are at least 50 miles apart and you pass the 39-week test.
Recent college grads take note: When you snag your first full-time job, you can claim a moving expense deduction if your former residence and the job location are at least 50 miles apart and you pass the 39-week test.
If you're a married joint-filer, only one spouse needs to pass the 50-mile and the 39-week tests.
Special rules apply to self-employed folks, to military personnel and for foreign moves. For details, see IRS Publication 521 at IRS.gov.
What Can You Deduct?
If you successfully pass the 50-mile and 39-week tests, your allowable moving deduction is limited to only a few eligible expenses. Even so, the deduction can be meaningful.
- You can write off the cost to pack and ship your possessions and up to 30 days of storage and insurance.
- The cost of traveling to your new home (once) is also allowed, including lodging but not meals. If you drive, you can deduct actual gas and oil costs or claim a standard moving allowance (23 cents per mile for 2012).
- You can deduct costs to disconnect utilities at your old home and get hooked up at the new home.
There's a longer list of things you can't deduct: house-hunting expenses, transaction costs to buy your new home and sell the old one, payments to acquire or break a lease, apartment security deposits, losses from selling or abandoning club memberships, and driver's license and car registration fees if you change states.
Once you've identified your deductible expenses, complete IRS Form 3903 (Moving Expenses). The resulting write-off shows up on page 1 of your 1040.
If Your Employer Helps Out
If you company pays for some or all of your moving expenses, you cannot deduct those costs. No surprise there.
There are two basic ways for employers to help pay moving costs. The company can give you a tax-free reimbursement for amounts you could have deducted if you had paid them yourself (see above), or it can simply give you a moving allowance and treat the whole allowance as additional salary.
If you receive a tax-free reimbursement that covers the expenses you could have deducted, you don't need to do anything tax-wise. In effect, you've already received a deduction because the reimbursement was not included in your taxable wages.
If you receive a tax-free reimbursement that covers only part of the expenses you could have deducted, you can deduct the difference by filling out the aforementioned Form 3903.
If your employer treats your entire moving allowance as additional taxable salary, you'll have to fill out Form 3903 to claim your rightful deduction. Remember: You can only write off what the tax rules allow. So if your company pays for things you could not deduct if you paid them yourself, like house-hunting trips and temporary housing while you wait to move into your new home, those extra allowances count as taxable wages.
Your employer may give you an advance to cover anticipated moving expenses before you actually do the deed. So what happens if you get an advance this year (say in December) but don't actually move until next year (say in January)? Do you have to pay taxes on the advance with this year's return and then wait until next year's return to deduct your allowable expenses? No. You can deduct the allowable expenses on this year's return even though the move actually takes place next year.
Finally, you might pay deductible moving expenses this year and get reimbursed next year. In that case, you must include the reimbursement for expenses you deducted this year as income on next year's return.
See IRS Publication 521 for full details on employer moving-expense reimbursements.