How to deduct moving expenses on tax return?

It is no secret that moving house is quite a difficult, laborious, time-consuming and nerve-racking process. Even worse – not only is it emotionally-draining, but it is financially-draining as well. So, by the time you find yourself in your new home, your bank account may as well be depleted and your pockets – empty. Under such unfavorable circumstances any chance to improve your financial situation will be greatly welcome, of course. As a matter of fact, there are many effective ways to save money after moving to a new place that can help you boost your distressed post-relocation budget. Deducting moving expenses on tax return, for example, is one of your best opportunities to keep a few extra dollars in your wallet. But who can deduct moving expenses and under what conditions?

Here is everything you need to know about moving tax deductions in order to successfully claim relocation expenses on your taxes:

When can you deduct moving expenses?

In order to qualify for the moving expenses deduction, your relocation needs to be closely related to the start of work at a new location. It can be a new job, the same job (you may have been transferred to a branch or department of your company located in another city), or your first job – as long as you need to relocate for work within the United States, you can write off moving expenses on your taxes (in the event of moving abroad for work, different rules apply, depending on a number of relevant factors).

Generally, you can deduct moving expenses incurred within one year from the date when you started work at the new location. Even if you have not yet secured a job at the time of your relocation, you can still deduct your moving expenses, provided that you actually get to work in the area during the next 12 months.

Keep in mind though that you won’t be able to deduct moving expenses if you don’t relocate within one year of the date you begin work (unless you can prove that your timely relocation was prevented by circumstances beyond your control).

Even if your move is work related, the Internal Revenue Service has two more basic rules for deducting moving expenses you have to meet:

1)   The distance test – your move will meet the distance test if your new workplace is located at least 50 miles further from your old home than your previous work location was. If you didn’t have a job, or if you worked from home before the move, then your new workplace must be at least 50 miles from your old home;

2)   The time test – to meet the time test, you need to work full time in the general area of your new job location for at least 39 weeks during the 12 months following your move. However, you are not required to work 39 weeks in a row or to work for the same employer all the time. If you are a self-employed person, you have to work in the area for at least 78 weeks during the 24 months after your relocation in order to meet the time test. Even if you haven’t met the time test by the end of the year when your tax return is due, you can still deduct IRS approved moving expenses if you expect to fulfill the requirement during the following year (if you fail to do so, however, you have to amend your tax return or report the deduction as income for the year you haven’t met the test).

In case you are married and filing jointly, only one of the spouses needs to meet both the time and distance tests.

There are exceptions to the above rules in case that:

  • you are a member of the armed forces;
  • you are a retiree or a survivor of a decedent who was working abroad;
  • you are laid off from the job for any reasons other than willful misconduct;
  • your job ends because of disability;
  • the form is being filed for a person who has passed away.

What moving expenses are tax deductible?

Are moving expenses tax deductible? If you meet the above requirements, you can deduct reasonable expenses for moving your belongings and traveling to your new home.

Deductible moving expenses include the costs for:

  • packing and transporting your household goods and personal possessions (regardless of whether you use professional moving services or perform a DIY move);
  • storing and insuring your belongings for a period of 30 days after moving out of your old home;
  • shipping your vehicles and pets;
  • transferring utilities;
  • traveling to your new home. You can deduct the cost of transportation and lodgings for you and your family members while traveling from your previous home to your new residence. It is not necessary for all the members of your family to travel together or at the same time, but you can only deduct expenses for one trip per person. Also, have in mind that the trip from your former home to your new one should be by the most direct route available. If you stop over on the way to your final destination or make side trips for sightseeing, the additional expenses for such stopovers or side trips are not deductible as moving expenses.

Good to remember: If you drive your car to your new home, you can deduct your actual expenses (such as the amount you pay for gas, for example) only if you keep an accurate record of each expense, together with the corresponding receipts. Otherwise, you can estimate your expenses based on the standard mileage rate (23 cents per mile as of 2015). Whether you have a record of your actual expenses or use the standard mileage rate to figure your moving expenses, you can deduct the parking fees and road tolls you pay during the relocation trip. However, you cannot write off any expenses for general maintenance, repairs, insurance, or depreciation for your car.

Non-deductible moving expenses

Deductible moving expenses do not include:

  • expenses incurred when buying or selling a home (including closing costs, mortgage fees, etc.);
  • expenses incurred when acquiring or breaking a lease (including security deposits);
  • loss on the sale of your old home, mortgage penalties, and other similar property-related expenses;
  • expenses for home improvements (whether they are for your old home or for your new one);
  • real estate taxes;
  • house hunting expenses and/or return trips to your former residence;
  • driver’s license and car registration fees;
  • losses from selling or giving up memberships;
  • storage charges except those incurred in transit;
  • expenses for the delivery or storage of newly-bought furniture (or other household items);
  • expenses for meals on the way to your new home.

If relevant, you might be able to deduct some of these amounts as business expenses. Depending on the type of relocation package you have negotiated with your company, you may as well be reimbursed for some (or all) of the above-mentioned expenses.

SEE ALSO: How do relocation packages work

How to deduct moving expenses?

To figure your moving expense deduction, you need to fill out Form 3903. Complete lines 1 through 3 of the form using your actual moving expenses. Then, enter the total amount of any received moving expense reimbursement that wasn’t included in your wages on line 4 (this amount should be identified in box 12 of your W-2 Form). If line 3 is more than line 4, subtract line 4 from line 3 and enter the result on line 5 – this is the amount of moving expenses you can write off. Transfer the result to Form 1040, line 26, to have these expenses deducted from your taxes.

If line 3 is equal to or less than line 4, you have no moving expense deduction. If line 4 is more than line 3, this means that your company has given you reimbursement for moving related expenses like meals and temporary housing which are not tax-deductible. If this is the case, you will have to pay income tax on that money – subtract line 3 from line 4 and include the result as income on Form 1040, line 7.

Have in mind that if you deduct your moving expenses in the year when your relocation took place but receive reimbursement from your company in a later year, you must include the reimbursement in your income for the respective year.

Whatever the specific circumstances in your case, make sure you keep all the moving-related documents and all the receipts for your relocation expenses, as well as any receipts from charity organizations for donations you have made prior to your move – you will need them when it comes to moving tax deductions.

Last but not least: Remember that tax deduction requirements change over the years, so it is a good idea to check the IRS website for updates when you settle into your new home after relocating for a job.

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