Many people pick up and move each month, often to start a new job. Uncle Sam will help pay the costs through tax deductions if you meet a few tests.
1. Did you have out of pocket costs? If your employer paid all the relocation costs and didn’t include it in your income, you came off scott-free and you don’t have any expenses to deduct on your tax return.
Deductible out-of-pocket costs include the expenses of packing and moving your belongings to your new home, temporary storage for up to 30 days, insuring your goods, utility connection costs (but not car registration), shipping pets, and the expenses of traveling to your new home (at 19 cents Jan 1- June 30, 2011, 23.5 cents July 1- Dec 31, 2011 if you use your own car), and lodging expenses on the trip and when you first arrive at your new location.
But surprisingly, meals aren’t included, so if you wine and dine along the way, don’t expect Uncle Sam to foot the bill. Helpful hint: You don’t have to itemize your deductions to claim moving expenses, and no limitations, income thresholds, phase-ins or phase-outs will reduce what you are allowed to claim.
2. Did you move because of a job? If so, your new job must be at least 50 miles farther from your old house than the distance between your old house and your old job. Got that? Let me explain with an example. Let’s say your old commute from home to the office was 10 miles. Now you have a new job in a neighboring town that is 65 miles away from your old house. You pass the test, because the distance from your new job to your old house (65 miles) exceeds your prior commuting distance (10 miles) by at least 50 miles. Helpful hint: It doesn’t matter if the job is your first job, a new job, or the same job in a different location.
3. Did you work full time in the new location? During the first year after your move, you have to work full-time for at least 39 weeks. That means that you can move to a new location and look for work, but you’ll need to land your new job and start work within three months. (If you are self-employed, the period is two years, during which you have to work at least 78 weeks.) Helpful hint: The worked weeks don’t have to be consecutive or even with the same employer.
Here’s how moving cost deductions work in a few special circumstances:
Your move is delayed. Let’s say that you are in a hurry to begin your new job, so you travel to your new location and stay in temporary housing until you can afford the time to make the move. Or your spouse may be finishing up her employment or the kids are finishing school in the old location. You must move within 12 months of starting your new job, or no deduction.
Your spouse was employed in old location but not in the new location. If your spouse has trouble finding work in the new location, or decides to stay home with the kids or go back to school, no problem. Only one spouse needs to meet the employment rules. But you and your spouse can’t alternate working and still get the deduction, since one of you must work 39 weeks in the first year – you can’t combine both your employment histories to satisfy that requirement.
You return to the USA to retire. If you’ve been living and working abroad, and now are retiring in the US, the IRS waives the requirement that you work full-time in your new location. That means that the costs of the move are deductible, regardless of whether you are gainfully employed.
Your tax return is due before you reach the 39-week mark. You can write off your costs even if you haven’t reached the 39-week mark, but beware. If you deduct moving expenses and then don’t pass the time test, you must file an amended tax return or include the moving expenses in your income the next year.
You lose your job. If your employer lays you off, the IRS will waive the 39-week test. The same is true if you are transferred and have to move again before you’ve worked a full 39 weeks in the new location.
Your employer pays part of the moving costs and includes it in your salary. If your employer adds the moving expense reimbursement to your salary, then you have to claim the expenses on your tax return to get your deduction. And if your boss paid for some costs that the IRS doesn’t allow and includes those in your income, you’ll have to pay tax on those reimbursements.
Please note, if you are a member of the armed forces and your move was due to a military order and permanent change of station, you do not have to satisfy the distance or time test.
Don’t worry about knowing how to enter your moving expenses. TurboTax will guide you through the entries and put the information on the appropriate tax forms.