IRS Moving Expenses Deductions: Write Off Relocation Costs

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IRS Moving Expenses Deductions: Write Off Relocation Costs

Sometimes, you have to move because of a change in your job or business location. Or, maybe it’s because you start a new job or business. The IRS allows you to take a mileage deduction on your taxes for these moves. Let’s take a look at deducting moving expenses on your tax returns and the moving expense deduction rules.

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What Moving Expenses Are Tax Deductible

The IRS allows you to deduct moving expenses if your relocation relates to starting a new job or a transfer to a new location by your existing company. To qualify for the moving expenses deduction, you must hit a few requirements.

You can deduct your moving expenses if you meet the following three requirements:

  • the one year test
  • the distance test
  • the full-time work test

Deducting Relocation Costs: The One Year Test

The basic rule is that you can only write off moving expenses incurred within one year from the date you first reported to work at the new location. You don’t have to arrange to work before moving to a new location. You can still take the deduction as long as you actually go to work in the new location within the first year.

If you do not move within one year of the date you begin work, you ordinarily cannot deduct the costs of moving. The exception is if you can show that circumstances existed that prevented the move within that time.

Movings Expenses Write-Off: The Distance Test

Your new workplace must be at least 50 miles farther from your old home than your old job location was from your old home. For example, if your old main job location was three miles from your former home, your new main job location must be at least 53 miles from your former home. If you had no previous workplace, your new job location must be at least 50 miles from your old home. If you go back to full-time work after a large period of part-time work or unemployment, your place of work also must be at least 50 miles from your former home.

Moving Costs Deduction: The Full-Time Work Test

You must work full-time for at least 39 weeks during the first 12 months immediately following your arrival in the the new job location. If you are self-employed, you must work full time for at least 39 weeks during the first 12 months. You’d also need to work a total of at least 78 weeks during the first 24 months immediately following your arrival in the general area of your new work location. If your income tax return is due before you’ve met this test, you can still deduct moving expenses if you expect to meet it.

There are a few exceptions to these rules. These include death, disability and involuntary separation, among other things.

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What Moving Expenses You Can Deduct

If you qualify for the moving expense deduction, you can deduct all your reasonable moving expenses including:

  • the cost of packing and transporting your household good and personal effects
  • costs you incur to connect or disconnect utilities
  • the cost of storing your household goods for up to 30 days after the day your things are moved from your former home and before they are delivered to your new home
  • the cost of travel and lodging for yourself and family during the move
  • your car expenses if you move by car–you can either deduct your actual expenses for gas and oil, or the standard mileage rate for moving.

You cannot deduct any of the following expenses:

  • cost of meals while you move
  • expenses that are reimbursed by your employer that are not included in your income
  • any part of the purchase price of your new home
  • car tags or driver’s license fees
  • expenses of buying or selling a home (including closing costs, mortgage fees, and points)
  • expenses of entering into or breaking a lease
  • home improvements to help sell your home
  • loss on the sale of your home
  • pre-move house hunting expenses
  • refitting of carpet and draperies
  • return trips to your former residence
  • security deposits (including any given up due to the move)
  • side trips for sightseeing during the move.

How to Deduct Moving Expenses

Moving expenses are figured on IRS Form 3903, Moving Expenses, and deducted as an adjustment to income on Form 1040. This makes them a particularly valuable deduction because you don’t have to itemize your deductions to claim them.

Refer to Publication 521, Moving Expense, for more information.

Are Relocation Expenses Taxable?

It depends on how your employer provides you with relocation expenses. If you receive them as a lump sum (for example, included with your first paycheck), then it is fully taxable as earnings. If your employer has a direct billing relationship with the moving vendors, it’s not taxable.

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Stephen Fishman

Stephen Fishman

Stephen Fishman is a self-employed tax expert and regular contributor to MileIQ. He has dedicated his career as an attorney and author to writing useful, authoritative and recognized guides on taxes and business law for entrepreneurs, independent contractors, freelancers and other self-employed people. He is the author of over 20 books and hundreds of articles, and has been quoted in The New York Times, Wall Street Journal, Chicago Tribune, and many other publications. Visit Fishman Law and Tax Files for more information on his work.
Stephen Fishman

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MileIQ’s blog does not constitute professional tax advice. You should contact your own tax professional to discuss your situation.