If you’ve ever moved, you know how quickly expenses can add up. Fortunately, Uncle Sam may be able to lighten your financial load by defraying some of the moving costs.
“Moving and tax breaks are two subjects that most people would probably never put together,” says Scott Halliwell, a CERTIFIED FINANCIAL PLANNER® practitioner at USAA. “But the good news is, if you clear three IRS hurdles, you just might be able to cut your tax bill as a result of moving.”
The first hurdle has to do with why you moved. Known as the “closely related” test, it helps confirm that your move was job related. To qualify, you have to start your new job within a year of incurring your moving expenses — but you don’t necessarily have to have a new job before you move. This is welcome information for military spouses, who often have to leave their jobs when their spouses receive PCS orders, or stay behind until their children finish the school year. According to IRS rules, your move also must be “closely related in place.” That means “the distance from your new home to the new job location is not more than the distance from your former home to the new job location.”
The final test is the “time test.” To pass, you must work full-time for at least 39 weeks during the first 12 months after your move to a new area. In addition, if you’re self-employed, you need to work a total of 78 weeks during the first 24 months at the new job. Passing the time test helps prove your move was indeed job related and that you didn’t relocate for a change of scenery.
If you know you’ll meet the time requirement in the near future, you can claim moving-expense deductions before passing the time test. For example, if you move in late 2014, you can claim the deduction on your 2014 tax return, even though you’ll complete the time requirement in 2015.
Service members generally have an easier time with IRS rules for moving expenses. That’s because a move due to a permanent change of station is not subject to the distance and time tests. For service members, moving costs that are not reimbursed by the military may be tax-deductible, says service member Michael Cox, who is serving at USAA on a one-year Training with Industry fellowship.
Military members also can take advantage of the Do-It-Yourself program. “In a Do-It-Yourself move, the government will reimburse the service member for moving themselves,” says Michael Nicholson, a service member with USAA Corporate Communications. “The service member may be able to pocket some additional cash, but they are going to have to work for it.”
So, Is It Deductible?
Generally, the following table can help you determine tax-deductible moving expenses:
|Transportation of household goods, including the cost of packing and crating them||Any costs that have already been reimbursed|
|Moving belongings to and from storage if you relocate outside the U.S.||House hunting|
|Travel from your old home to your new one; you can deduct actual costs or use a standard mileage rate||Money spent selling your home|
|Shipping your car||Return trips to your old home|
|Connecting/disconnecting utilities||Any penalty for breaking a lease|
|Shipping your pets||Any of the amount paid for the new home|
Be sure to save all receipts for any moving-related expenses. While meals are not tax-deductible, some expenses for lodging and associated travel are eligible. Use IRS Form 3903 to figure your deduction, and report the total expenses on IRS Form 1040.
Finally, Halliwell says, “Even with a basic understanding of the rules, it’s probably still smart to seek the assistance of a CPA or other qualified income-tax advisor when trying to deduct moving expenses, just to be safe.”
Visit IRS Publication 521, Moving Expenses for more details about moving-expense deductions.
For more great PCS tips, please see MilitaryOneClick’s Home and Relocation page.