How to Deduct Moving Expenses from Your Personal TaxesBy Jess Hutton
Tax season is here and that means it’s time to start looking for little ways to stick it to the man (and there’s nothing wrong with that). Okay, maybe you’re not really sticking it to anyone by saving money on your taxes, but it does feel pretty great when you find ways to tell Uncle Sam to keep his hands off your hard earned cash.
If you’ve recently relocated, you know how draining a move can be on your finances. But it turns out, if you’ve moved in the last year, now’s the time to recoup some of that money. Here’s how.
1. Determine Your Qualifications
The IRS requires you to meet three qualifying factors in order to claim moving expenses on your taxes.
- You meet the time test.
- You meet the distance test.
- Your move relates to the start of work.
The Time Test: If you’ve acquired a new job, you must work full time for at least 39 weeks at your company within the first 12 months to meet the time test. The requirement starts immediately upon arrival, so no sitting around for a month before you get started at your new position. If you’re self-employed, the 39-week requirement still stands but you also have to work full time at least 78 weeks within the first 24 months of your move.
The Distance Test: If you switch jobs, your new workplace must be at least 50 miles further from your old home than your previous workplace. So, if you drove 15 miles to work each day at your previous home and workplace, your new workplace would have to be 65 miles away from your previous home to qualify.
If you were previously unemployed and moved to start a new job, your workplace must be at least 50 miles away from your old home.
Relating to the Start of Work: A move made within a year of starting a new job is usually considered as relating to the start of work. Convincing Uncle Sam your move is closely related in place is a bit trickier.
A move closely related in place is defined as a move wherein your new home is no further away from your new job than your old home was to your old job. There are two exceptions:
- Moving to your new home was a condition of employment.
- Moving to your new home saves you money on your commute.
2. What’s Deductible and What’s Not
Many of the deductible items in relation to a move are what are known as reasonable expenses. Those are typically the costs associated with transporting your personal possessions to your new home and the costs of travel.
Some items included in the reasonable expenses include the cost of fuel, lodging, and rental fees for things like a U-Haul. The frequent stops at McDonald’s will not be covered, as you can’t deduct food from your taxes. You should keep all receipts for fuel charges, hotels, and other fees incurred during your travels.
You can also deduct those beefy guys who helped you unload all your furniture and all the boxes you paid for from Lowe’s. The cost of using moving companies, storage, supplies, and transporting your property are all deductible. In some cases you might even be able to cover the cost of transporting your pet, but don’t get your hopes up about deducting his kibble. You can include traveling expenses for other members of your household like spouses and children.
Transferring or connecting new utilities can also be deducted on your taxes. The cost of buying or renting your new home is all on you. The IRS isn’t interested in refunding you for closing costs, HOA fees, or any fees related to entering a lease.
3. Figuring Out the Right Form
Relocation expenses are to be reported on IRS Form 3903. The form should be attached to the personal tax return of the year following your move. Remember, you must meet the 12-month requirement for the time test before you can deduct your moving expenses.
Do not file Form 3903 in the event of the following:
- You moved outside of the United States in a previous year.
- You’re claiming storage fees, not travel or moving expenses, while you were outside the United States.
- Your employer paid for storage fees and included it in your Form W-2.
These instances are covered on Form 1040, line 26. For more information on filing Form 3903 or clarification on what moving expense are covered, be sure to take a look at the IRS website or speak to a tax professional. This outline should provide you with a basic idea of what you need to know but, when it comes to the IRS, nobody wants to take chances.
Photo by JD Hancock/Flickr