Making Moves: Tips For Tax Deductions When Moving

August 21, 2012 — Leave a comment

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Earlier this summer our Law Firm, JDKatz PC, moved to a new location, it was an exciting and just slightly frustrating experience. Just a few months can make an impact in how a move can go.  For example, moving in August is a different experience than moving in June. In August you will be running up against all of the back-to-school moves, as well as those moving for new jobs, which can make coordinating movers and utilities tricky.

Fortunately for us, the cost of our move was deductible. This isn’t so for all taxpayers. You can only deduct moving expenses which are work-related; those which are for purely personal reasons (a change of scenery, for example) are not deductible.

First, to qualify, you have to meet three criteria:

  1. The move must be “closely related” to the start of a new job for your trade or business. As a general rule, a move that happens within a year of your reporting to your new job would qualify as timely for purposes of the deduction (some exceptions apply).
  2. The move meets the distance test. If your new main job location is at least 50 miles farther from your former home than your old main job location was from your former home, you meet the test. As an example, I live about a mile from my office. To qualify for moving expenses, my new job would have to be at least 51 miles away from my old home. And yes, since I know you’re wondering, you would use the shortest commonly traveled distance between the two points – you can’t drive around the beltway three times and count those miles.
  3. The move meets the time test. The rules for this one are different, depending on whether you are an employee or if you are self-employed. If you are an employee, you must work full time as an employee for at least 39 weeks during the first 12 months after you arrive in the general area of your new job location. The work doesn’t have to be for the same employer, nor must the 39 weeks be consecutive. If you are self-employed, the rules are a bit trickier. Not only do you have to meet the 39 week test, you have to double it: you must work full time for at least 78 weeks during the first 24 months after you arrive at your new location. You are considered self-employed if you work as the sole owner of an unincorporated business or as a partner in a partnership carrying on a business.

You won’t be surprised to learn that there are exceptions to the time test in case of death, disability and involuntary separation, among other things (though those three are all pretty grim reasons for exceptions). Additionally, if you are a member of the armed forces and your move was due to a military order and permanent change of station, you do not have to satisfy the “distance or time tests”.

And sadly for parents everywhere, the IRS doesn’t consider going to school a job (no matter how much work it might feel like) so moving to college doesn’t count. Additionally, for purposes of calculating moving expenses, you are not considered self-employed if you are semi-retired or if you are a part-time student.

All of that said, if you meet the criteria, you can deduct the reasonable expenses of moving your stuff (household goods, clothes, furniture, car and the like) and yourself and your household (meaning the cost of travel which includes lodging but not meals). And yes, you can breathe easy knowing that you can deduct the cost of shipping your household pets to your new home.

Reasonable moving expenses do not include the cost of selling your home, the cost of buying a new home, expenses to find a new home, or storage charges (unless they happen en route to your new home). Remember that you can’t include any moving expenses which have been (or will be) reimbursed to you by your employer.

You report your moving expenses using a federal form 3903, appropriately titled Moving Expenses (downloads as a pdf). You can deduct moving expenses on your current year tax return even though you have not met the time test by the date your return is due. For 2012, for example, you can take the deduction if you expect to meet the 39-week test in 2013 or the 78-week test in 2013 or 2014. If you do not deduct your moving expenses on your 2012 return, and you later meet the time test, you can file an amended return for 2012 to take the deduction.

The best part? You don’t have to itemize to take the deduction. Moving expenses are an adjustment to income and not a Schedule A deduction.

There are exceptions and nuances, so check with your tax professional if you have specific questions or special circumstances.

JDKatz, P.C. is a full-service law firm focused on tax law and estate planning. We are dedicated to minimizing your existing liability and risks while providing valuable tax planning to streamline your tax issues in the future. Please call us at 301-913-2948 to schedule an appointment to meet with one of our trusted attorneys.

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