By: Bryan Davidson, CPA, Senior Accountant
Relocating for your career can be a welcome or unwelcome change. No matter how you feel about it, you can bet your move will bring about several financial matters to deal with. However, you might be pleasantly surprised to find out that many of your moving expenses could be tax deductible.
Packing, shipping, storing and insurance costs up to 30 consecutive days, as well as transportation and hotel stays when you are in route to your new location could be deductible. Meals you buy and attractions you visit along the way simply aren’t. Looking deeper at what isn’t deductible- the purchase of your new home or the costs involved with selling your old one will also need to stay off of your tax return.
Distance matters when it comes to deductions related to a move. You must be relocating at least 50 miles away from your old home and job location. The IRS refers to this as the “distance test” and it explains it as follows:
Your new principal workplace must be at least 50 miles farther from your old home than your old workplace was. For example, if your old workplace was 3 miles from your old home, your new workplace must be at least 53 miles from that home. If you did not have an old workplace, your new workplace must be at least 50 miles from your old home. The distance between the two points is the shortest of the more commonly traveled routes between them.
Time matters to the IRS as well and you guessed it, there is a test for this element of your move as well. How long do you have to work in your new location before you are eligible for deductions? Here is how the IRS explains it:
If you are an employee, you must work full time in the general area of your new workplace for at least 39 weeks during the 12 months right after you move. If you are self-employed, you must work full time in the general area of your new workplace for at least 39 weeks during the first 12 months and a total of at least 78 weeks during the 24 months right after you move.
If you don’t meet the time test requirements before it is time to file your return you have two options. You can claim the deduction on your return if you reasonably expect to meet the time test or wait until you do and file an amended return. If you claim the deduction before you meet the test and your situation changes where you do not meet the requirements you can file an amended return or pick up the deduction as other income on the following years tax return.
It is not unusual for an employer to reimburse their employee for their relocation costs. If this happens, there are special rules to follow regarding when and how to report moving costs for deduction.
For more information on deducting moving costs for a work-related relocation, please contact Holbrook & Manter today. We will be happy to answer any questions you may have.