How to know if your move is tax deductible
You may be able to deduct your moving expenses—if your move meets certain conditions.
First, your move must be for work-related reasons, like starting a new job, relocating because of a change to your current job, or starting a new business.
Second, your move must pass the distance test. Your new job needs to be fifty miles farther from your previous home than your old job was.
Third, you have to pass the time test by working long enough in your new location. If you’re employed by a company, you need to work full-time for thirty-nine weeks in the year after you relocate. If you’re self-employed, you need to work full-time for thirty-nine weeks in the first year and seventy-eight weeks in the first two years after your move.
If you’re in the military and relocating on orders, your move is automatically tax deductible. You don’t have to pass the time test or the distance test.
- Are you moving for work-related reasons?
- Is your new job 50 miles farther from your old home than your old job was?
- Will you work full-time for at least 39 weeks in the year after your move?
If you said yes to all 3 questions, your move is probably tax deductible!
The ins and outs of tax-deductible moving expenses
As with all things tax-related, the devil’s in the details. Keep reading to find out more about deducting your moving expenses.
What are those three tests again?
Remember, your move must pass three tests to be tax deductible (unless you’re in the military moving on orders): you must move for work, move at least a certain distance, and work in your new location long enough. While the first test is pretty self-explanatory, the distance test and time test can be confusing.
The distance test
The distance test requires that your new job be at least fifty miles farther away from your old house than your old job was. For example, if your old job was ten miles from your house on 123 Old St., then your new job must be at least sixty miles from 123 Old St. for your move to count as tax deductible. A new job across the country almost certainly qualifies, but a new job across town might not.
The time test
The time test, on the other hand, requires you to work full-time for a length of time in your new location. Again, that’s thirty-nine weeks in your first year if you’re an employee, and thirty-nine weeks in your first year and seventy-eight weeks in your first two years if you’re self-employed.
As you consider the time test, keep in mind that your full-time work doesn’t have to be for a single employer. You can switch jobs and pass the time test, as long as you’re in the same general area.
Also, you probably won’t officially pass the time test before you want to deduct your moving expenses on your taxes. That’s fine. The IRS lets you take the deduction for the tax year in which you move, with the understanding that you’ll pass the time test before the next tax season rolls around. If you don’t—because you move again or stop working, for example—you’ll have to amend your tax return or include your deduction as income on your next tax return.
What counts as moving expenses?
Fortunately, the IRS recognizes a pretty broad range of costs as moving expenses. Your packing supplies count as moving expenses, as does the cost of a moving company (or a moving container or a rental truck). Any transportation costs for your family—such as plane fare, train tickets, or gas—also count. You can even include the cost of a storage unit for thirty days.
Don’t, however, try to deduct the cost of the pizza you bought for the friends who helped you pack or the cost of all that fast food you ate as you traveled. Food costs don’t count as moving expenses.
Keep in mind also that your moving expenses are limited to the expenses of your actual move. You can’t deduct expenses for trips to look for a new house—you’ll have to find granite countertops and vaulted ceilings on your own dime. Likewise, you can’t count any side trips on your move. The IRS expects you to take the most direct route possible, so think twice before you detour to see the World’s Largest Ball of Twine.
- Packing supplies
- Moving services
- Transportation costs
- A storage unit for 30 days
Not moving expenses
- Pre-move trips
- Side trips
- A storage unit after 30 days
What about employer reimbursement?
If you’re moving for a job, your new employer might offer to reimburse your moving expenses as a nice benefit. To see whether or not this is a taxable benefit, look at your W-2 form to see if your employer counted moving reimbursement as part of your income.
Check out box twelve on your W-2. Is there a number there? Does it have the code P? If so, you can take the deduction. You’ll see a code P if your employer has an accountable reimbursement plan—that is, you have to log and report your moving expenses to them and return any excess reimbursement.
If your employer has a nonaccountable reimbursement plan—one in which you get moving money without reporting your expenses to your job—then your reimbursement should be included with your wages in box one of your W-2. In that case, you can still take the deduction.
If you don’t see a code P in box twelve and your wages in box one don’t include reimbursement, then you can’t deduct your employer-reimbursed moving costs.
Enjoy your deduction
Moving and taxes can both be unpleasant, but hopefully deducting your moving expenses helps take the edge off.
If you’re ready to claim your deduction, fill out and include Form 3903 in your tax return.
If you want to verify that your moving expenses are tax deductible, check out the IRS’s Interactive Tax Assistant tool. Simply answer a few questions, and the tool will tell you if your moving expenses qualify.
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