Suspension of Deduction for 2018 to 2025
In general, the deduction for moving expenses has been suspended for 2018 to 2025. The similar exclusion for qualified moving expense reimbursement has also been suspended for 2018 to 2025. However, both provisions may still be available for a member of the U.S. armed forces on active duty who moves pursuant to a military order and incident to a permanent change of station.
What Is It?
If you move to a new home for job-related reasons (either new employment or a transfer), you may be able to deduct the unreimbursed costs of moving you and your family if you meet the distance and time requirements set by the IRS. You may qualify for the deduction whether you're an employee or self-employed, but the expenses must be related to your beginning work at a new job location. The moving expense deduction is not an itemized deduction. Instead, it is an expense that you deduct when figuring your adjusted gross income (AGI) on your federal income tax return.
Expenses Must Be Job Related
Your Expenses Must Be Closely Related In Time to The Start of Work At Your New Job Location
Generally, this means that you can deduct moving expenses you incur up to one year after the date you first report to work at your new job. Expenses incurred after a year are deductible only if you can show that circumstances existed that prevented the move within that time. For example, extra time may be allowed for a child to complete high school or for a spouse to complete an employment contract.
Your New Home Must Be Closely Related In Place to Your New Job Location
Generally, the distance from your new home to your new job location should not be more than the distance from your former home to your new job location. In other words, your new home will not be considered closely related to your new job location if it results in a commute longer than that which you would have had from your old home. Even if your new home results in a longer commute than your old home would have, your move can still qualify if you can show that either (1) a condition of your employment requires you to live at your new home, or (2) you will spend less time or money commuting from your new home to your new job.
Caution: In addition to the above, you must meet the distance test, described below.
Your Move Must Meet the Distance and Time Tests
The Distance Test
To meet the distance test, your new job must be at least 50 miles farther from your former home than your old job was from your former home. So, for example, if the distance between your former home and your old job was 100 miles, your new job must be at least 150 miles from your former home to meet the distance test. If your new job is your first full-time job, or your first full-time job after a substantial period of part-time work or unemployment, the distance test is met if your new job is at least 50 miles from your former home.
Tip: The location of your new home is not a factor in the distance test.
Tip: If you are in the armed forces and you moved because of a permanent change of station, you do not have to meet the distance test.
Example(s): Jack lives in Chicopee, Massachusetts, and is employed in Worcester. He begins a new job in Boston. He moves 90 miles to Boston because he's tired of commuting so far every day. The distances are as follows:
Old home to new job location = 105 miles
Old home to old job location = 52 miles
Example(s): Since the new job location is 53 miles farther from his old home than his old job was, the distance test has been met. If Jack had not worked prior to the Boston move, he still would have met the distance test because his new job is at least 50 miles from his old home.
The Time Test
If you're an employee, you must work full-time for at least 39 weeks during the first 12 months after your move. If you're self-employed, you must work full-time at least 39 weeks during the first year after moving and for at least 78 weeks during the first 24 months after you arrive at your new job location. If you're married and file a joint tax return, and both you and your spouse work full-time, either of you can satisfy the time test. However, you can't combine the weeks you worked with the weeks your spouse worked to satisfy the test.
Example(s): Jack's employer transferred him from Phoenix to Boston. He moved his family the 3,000 miles (undoubtedly meeting the distance test) on July 27 of year one. Jack began work on August 11, and continued working there until he quit without notice on March 10 of year two. As an employee, he must meet the 39-week test. His failure to meet this test means that he cannot deduct his moving expenses, even though he met the distance test.
Example(s): However, the time test need not be met with the same employer. If Jack begins another job (or returns to his old employer) and manages to work a total of 39 weeks in the 12 months after his move, he may still deduct his moving expenses because the 39 weeks need not be consecutive or for the same employer. If he remains unemployed but his spouse meets the time test (and they file a joint return), they can deduct the moving expenses.
You don't have to meet the time test if (1) you're in the armed forces and you move because of a permanent change in station, (2) you moved to the United States because you retired, (3) you're the survivor of a person whose main job location at the time of death was outside the United States, (4) your job at the new location ended because of death or disability, or (5) you're transferred for your employer's benefit or laid off for a reason other than willful misconduct (you must have obtained full-time employment and must have expected to meet the time test when you began the job).
What Moving Expenses Can You Deduct?
Deductible moving expenses are those you incur from traveling from your old home to your new one to begin work at a new location. You may deduct the following:
- Costs for moving your household goods and personal effects
- Traveling costs to your new home (via the shortest route), including lodging but not meals
- Costs of packing and crating household goods and personal effects
- Cost of storing and insuring household goods and personal effects within any period of 30 consecutive days after your move but before they're delivered to your new home
- Costs of connecting or disconnecting utilities
- Cost of shipping your car
- Cost of shipping household pets, including veterinarian and drug bills to prepare them for the trip
- Actual cost of travel by car to your new home (including gas, oil, parking fees, and tolls, but not repairs, maintenance, or depreciation) or the standard mileage rate of 17 cents per business mile for 2020 (down from 20 cents per business mile for 2019)
- Cost of moving your household goods and personal effects from a place other than your former home but only up to the amount it would have cost to move them from your former home
What Kinds of Moving Expenses Are Not Deductible?
You may not deduct unreasonable expenses. Unreasonable expenses include those you incur by not taking the shortest or the most direct route or by not traveling in the shortest time normally required. So, for example, you cannot deduct expenses you incur in a sightseeing side trip. In addition, you may not deduct the following:
- Pre-move house-hunting expenses
- Cost of shipping furniture bought while en route to your new home
- Temporary living expenses
- Cost of meals
- Cost of buying or selling a home, including loss on the sale of your old home or mortgage penalties
- Loss from disposing of memberships in clubs
- Car registration or plates
- Driver's license fees
- Refitting carpet or draperies or carpet installation
- Storage charges, except those incurred in transit and for foreign moves
Expenses Incurred While Moving Outside the United States
You can deduct the expenses you incur moving outside the United States if you're a U.S. citizen or resident alien who moves outside the United States or its possessions because of a job outside the United States. You must still meet the distance and time tests, but if you do, you can deduct your reasonable moving expenses. You can also deduct the reasonable expenses of storing your personal effects for all or part of the time that the new job location remains your main job location.
Reimbursement By Employer for Some (or All) of Your Expenses
You moved for your job, and your employer reimbursed you for some (or all) of the expenses you incurred. If your employer reimburses you under an accountable plan (you have to account for all expenses to your employer and return any excess reimbursement), your reimbursement should not be included as taxable income on your Form W-2. Since your reimbursement is not considered taxable income, you can't take a deduction for your expenses. If your employer reimbursed you for moving expenses that weren't deductible, such as meals, these amounts should be shown as taxable wages on your Form W-2, subject to income tax withholding, Social Security tax, and Medicare tax.
Technical Note: Reimbursements that your employer makes to you under an accountable plan, which are not included in income, should show up on your Form W-2 in box 13 with a code "P."
If your employer reimburses you under a nonaccountable plan (you don't have to account to your employer for all expenses and don't have to return excess reimbursement), your reimbursement should be included as taxable income in box 1 of your Form W-2. You can deduct any qualifying moving expenses.
Tip: If you're not sure how your employer is reporting your reimbursement, ask him or her.
First and foremost, keep adequate and accurate records of all moving-related expenditures. You should keep a log of your activities, as well as receipts for expenses you paid.
If You Didn't Meet the Time Test
If your moving expenses aren't deductible because you didn't meet the time test, remember that expenses you incurred for the sale or exchange of a former home may be used to lower the gain on the sale. Expenses for the purchase of a new home may be added to its basis.
Deduct Your Allowable Expenses in the Year You Incurred Them or In the Year You Paid Them
If you weren't reimbursed for your moving expenses, you may deduct your allowable moving expenses in either the year you incurred them or the year you paid them.
Example(s): In December of 2016, your employer transferred you to another city. You aren't reimbursed for your moving expenses, but you paid for moving your furniture in 2016. You can deduct these expenses in tax year 2016. In January of 2017, you paid for travel to the new city. You can deduct these additional expenses in 2017.
If you were reimbursed for your expenses, you may also be able to deduct your allowable expenses in either the year you had them or the year you paid them. If you use the cash method of accounting, you can choose to deduct the expenses in the year you're reimbursed even though you paid them in a different year.
If you're reimbursed for your moving expenses in a later year than you paid them, you may want to delay taking the deduction until the year you receive the reimbursement. If you don't choose to delay your deduction until the year you're reimbursed, you must include the reimbursement in your income.
This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.
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