An employee or self-employed individual may deduct moving expenses from his adjusted gross income. However, the amount must be reasonable and the move must be related to starting work in the new location.
Generally, moving expenses are deductible only if closely-related, both in time and place, to beginning employment at a new job location.
- “Closely-related in time” generally means that all expenses must be incurred within one year of first reporting to work at a new location. An acceptable exception to this rule exists for taxpayers who can prove that circumstances existed that prevented the move within that time.
- A second “time test” also must be met. If the taxpayer is an employee, the taxpayer must work full time for at least 39 weeks during the first 12 months after arriving in the new general area. Self-employed taxpayers not only must work full time for at least 39 weeks during the first 12 months, but must also work full time for a total of at least 78 weeks during the first 24 months after arriving at the new location. The definition of full-time work depends on what is usual for the type of work the taxpayer does in the taxpayer’s line of work. For example, a dentist working four days a week is acceptable to the IRS.
- The “closely-related in place” requirement has two parts:
- The distance from the new home to the new job location is not more than the distance from the former home to the new job location, moving is a condition of employment, or commuting time costs less in time or money from the new home to the new job.
- The new job location is at least 50 miles farther from the former home than the old main job was from the former home.
All moving expenses are not deductible—only those that are specified under the Internal Revenue Code and regulations qualify. Under these rules, reasonable costs related to moving household goods and personal effects qualify, but the extra costs of fitting windows for new curtains, finding a new private school, or selling a residence, for example, do not. Other costs the IRS has established as deductible include:
- The cost of storing and insuring household goods and personal effects only within any period of 30 consecutive days is deductible.
- The cost of moving possessions from another location (example, a summer home that is also being sold) can qualify, but only to the extent of what it would cost to ship from the principal home.
- The cost of traveling from the old home to the new home by the most direct route is deductible. Traps in deducting this expense include:
- The standard mileage rate for travel by car for 2013 is only 24 cents per mile. Parking fees and tolls may be added to the mileage.
- Instead of mileage, you may deduct the cost of gas and oil, but not general maintenance, repairs, insurance or depreciation.
- The IRS says that lodging expenses can include staying in a hotel at the location of the old residence within one day of the furniture being moved and expenses on the day the taxpayer arrives at the new location.
If you pass the “tests,” then your qualified moving expenses are deductible in the year of the move. In the event that you later do not meet the requirements, such as the new job does not work out and you return to your original home, you will fail the time test in the next year after you have claimed the moving expense deduction. You should file an amended return and pay the tax on the now “nondeductible” moving expenses.
For more information regarding this topic, please contact Henssler Financial at 770-429-9166 or experts@henssler.com.