Did you move to take a new job this year? Census figures on geographic mobility indicate that over 25 million people in the U.S. move every year. Of that number, roughly 20% (nearly 6 million people) moved for employment reasons.
The U.S. is a mobile society, and a move related to new employment is not uncommon. In fact, the tax code gives a tax benefit for moving expenses if certain conditions are met. The benefit is an adjustment to income (Form 1040, line 26), which helps lower taxable income. The amount of the adjustment is figured on Form 3903.
Let’s see if you qualify for the moving expense deduction and calculate how much you may save. Check out our Complete Tax Filing Guide for more help.
Determining If You Qualify
Before calculating the value of this tax benefit, we first must determine if you are eligible. You must pass each of the following tests below to qualify.
1. Related to the Start of Work
The move must be related both in time and place to the start of work in the new location. Moving expenses incurred within one year from the date you reported to work are generally considered to be related in time. The expenses are related in place if the distance from your new home to your new job location is not greater than the distance from your old home to your new place of employment.
2. Distance Test
Your new job location must be at least 50 miles farther from your former home than the distance from your former home to your former job. If you did not have a job, then the new place of employment must be at least 50 miles from your former home.
3. Time Test
There are different tests if you are an employee versus if you are self-employed:
- If you are an employee, you must work full-time for 39 weeks in the first 12 months following your arrival in the area of your new job.
- If you are self-employed, you must work 39 weeks in the first 12 months and 78 weeks in the first 24 months following your arrival in the area of your new work location.
Note, if you are married and filing a joint return, either you or your spouse can meet the time test, but you cannot meet the test by adding your weeks of employment to your spouse’s weeks of employment.
4. Exceptions to the Time Test
There are several situations in which you do not need to meet the time test, including:
- Your main job location was outside the U.S. and you moved to the U.S. because you retired.
- You are the survivor of someone who worked abroad at the time of their death and moved to the U.S.
- Your job in the new location ends because of death or disability.
- You are transferred for your employer’s benefit or are laid off (not for willful misconduct), as long as you were working full-time and expected to be employed long enough to meet the time test.
- You are in the Armed Forces and you moved because of a permanent change of station.
According to IRS Publication 521, Moving Expenses, a permanent change of station includes any of the following:
- A move from your home to your first post of active duty.
- A move from one post of duty to another.
- A move from your last post of duty to your home or to a nearer point in the U.S.
How Much You Can Save
You can deduct the following expenses:
- Moving your household goods and personal effects, including packing, crating, and transporting, as well as in-transit storage.
- The cost of connecting or disconnecting utilities.
- Shipping your car or pet.
- Traveling (transport and lodging but not meals) to your new home as long as you travel by the most direct route. Side trips for sightseeing or visiting relatives or friends cannot be considered part of the move. If you drive your own car, you can deduct either actual expenses (if you keep an accurate record) or a standard mileage rate. For 2016, the rate is $0.19 per mile. With either method, you can also deduct tolls and parking expenses. You cannot deduct general auto repairs or maintenance, insurance, or depreciation.
Expenses That Do Not Qualify
Here are some of the many expenses that may seem related to a move but are not deductible as moving expenses. Some of these expenses may be deductible on Schedule A, if you itemize deductions.
- All or part of the price of a new home
- Expenses of buying or selling a home (closing costs, points, mortgage fees)
- Home improvements to sell your home
- Loss on the sale of your home
- Mortgage penalties
- Car tags
- Driver’s license
- Expenses of obtaining or breaking a lease
- Security deposits (even if given up due to the move)
- Losses from disposing of club memberships
- Pre-move house hunting expenses
- Real estate taxes
- Refitting of carpet or draperies
- Return trips to your former home
- Storage charges, except those incurred in transit
In addition, any expenses that are reimbursed by your employer are not deductible. Similarly, if the reimbursement is more than the cost of the move, the excess must be included in income. If your employer includes the amount of the reimbursement in income, then your moving expenses are deductible.
The tax code supports a mobile workforce by making expenses for moving to take a new job deductible as an adjustment to income. Moving can be a hassle, but being able to deduct the associated expenses, makes it more tolerable come tax time.
If you have kept accurate records, filling out Form 3903 to claim the deduction is not difficult. As you are thinking about your new job and taxes, remember that some work-related expenses are deductible if you itemize your deductions. In addition, some costs related to finding a new job are also deductible.
Did you move to take a new job this year? Remember that those unreimbursed moving expenses are deductible and reduce your taxable income. And don’t forget to check out our Complete Tax Filing Guide for more help.