By Jeff Walker
Depending on your move circumstances, your move may qualify as a tax deduction on your next year’s tax return. The IRS has outlined the rules and guidelines for being able to deduct your moving expenses in their online publication called 521, Moving Expenses. 521 outlines not only the qualifications, but tells us what is and is not deductible, as well as giving an example of a move and how those expenses were tracked and later deducted.
Work Related Move
The IRS plainly states who can and can’t take a deduction for their move in the “Who Can Deduct Moving Expenses” of pub 521. Here we learn a few things. If your move is “Closely related to the start of work” you qualify. In other words, if you moved to start a new job, even if it’s within the same company, you may deduct your moving expenses on your next tax return. Keep in mind however, if your employer is paying the majority of the expenses for your move, you can only deduct what you paid for out of pocket. Some examples of items that cannot be deducted are:
• Pre-Move house hunting expenses
• Down payments on a new home
• Real Estate Commissions
• Any loss on a pre-move home (you sold your house for less than what it was worth)
• Meal expenses en route
• Temporary living expenses such as living in a hotel/motel until your new home is ready and after arriving at the destination
How Far will you go
This can get a little confusing, but if your new job is 50 miles farther from your former home than your old job is from your old home, you may qualify. To figure this out, you’ll need to know both the distance from your home to your old workplace and the distance from your old home to your new workplace. For example, if I were living in Rockford, IL and my old job had a base location of 5 miles from my old home before my move and my new base location is in Madison, Wi (74 miles away from my old house), I would take the new location minus the old location (74-5=69) and find out that I was, in fact more than 50 miles away from my old home to my new base location for work. This would qualify me for a tax deduction according to pub 521.
The IRS outlines what they call their “Time Test” in pub 521. This can also be a bit confusing, and the rules differ depending on if you are an employee or self-employed. For an employee, you may qualify for a tax deduction for your move if you work for at least 39 weeks during the first 12 months after arriving in the area of your new job location. You must be a full-time employee, must work in the same general commuting area for the 39 weeks but you do not have to have the same job for those 39 weeks and you do not have to have worked those 39 weeks in a row. For the self-employed, you will need to work 39 weeks during the first 12 months and 78 weeks during the first 24 months after arriving in the area of your new job location. You do not have to work for the same employer during that time and can count any work you do as self-employed or as an employee during that time. You also must work in the same commuting area for all 78 weeks.
Our primary goal with this article was to illustrate that in some instances, your move may be claimed on your tax returns. While we’ve tried to outline some of the criteria for qualifying your move for a tax deduction, it’s always best to get expert advice from the accountant who performs your tax returns. He or she will know best what current laws are in place and whether or not you qualify for the deduction. In addition, if you have any questions you can always refer to the IRS’s Publication 521 for more information.