For tax years prior to 2018, Federal tax laws allow you to deduct your moving expenses if your relocation relates to starting a new job or a transfer to a new location for your present employer. To qualify for the deduction, your new work location must be a sufficient distance from your old home and you must begin working shortly after you arrive. Beginning in 2018, the moving expense deduction is only available to certain military personnel.
Beginning in 2018
Beginning in 2018, moving expenses are no longer eligible for a tax deduction on your federal tax return however, some states such as California continue to provide a deduction on your state tax return if you qualify.
Distance test requirements
The costs you incur for moves within the same town do not qualify for the deduction. The distance between your new job and your former home must be at least 50 miles farther than your previous employer is from that home. For example, if your previous commute to work was five miles each way, then the distance from your new job location to your old home must be at least 55 miles. When evaluating whether you satisfy the distance test, the IRS requires you to use the shortest commutable routes between two locations.
Time test requirements
You must work full-time for a minimum of 39 weeks during the initial 12-month period that starts on the day you arrive in the new location. You can still satisfy this requirement when the 39 weeks are not consecutive and even when it's for multiple employers. The IRS does not specify the number of days or hours you must work each week to be a full-time employee; instead, it defers to your industry’s commonly-accepted standard.
Deductible moving expenses
The deduction covers the reasonable expenses you incur to transport your personal effects and household items to your new home. You can even include the cost of renting a storage unit for up to 30 days if you are unable to move into your new home immediately after leaving your former home.
You can also include the cost of traveling to the new location for yourself and other members of your household. If you drive to the new location in a personal vehicle, you can include the actual cost of oil, gasoline, parking fees and highway tolls. In lieu of using the actual cost of gasoline and oil, the IRS permits you to calculate those costs using the annual standard mileage rate for moving. For long-distance moves, you can deduct the cost of airline and train tickets.
Claiming the moving expenses deduction
The moving expense deduction is one of the few tax deductions you can claim before knowing whether you satisfy the requirements. As a result of the time test’s 12-month period, most taxpayers cannot satisfy the time test until the following tax year. However, the IRS allows you to claim the deduction in the year you move.
To claim the deduction, you must report all relocation expenses on IRS Form 3903 and attach it to the personal tax return that covers the year of your move. In the event you do not satisfy all requirements at the conclusion of the 12-month period, you must reverse the deduction. You will either include the original deduction amount in “other income” on your next tax return or amend the original return to calculate your tax without the moving expense deduction.
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FAQs
Moving expense deduction eliminated, except for certain Armed Forces members. For tax years beginning after 2017, you can no longer deduct moving expenses unless you are a member of the Armed Forces on active duty and, due to a military order, you move because of a permanent change of station.
What are IRS approved moving expenses? ›
You can deduct the expenses of moving your household goods and personal effects, including expenses for hauling a trailer, packing, crating, in-transit storage, and insurance. You can't deduct expenses for moving furniture or other goods you bought on the way from your old home to your new home.
How much of moving expenses are tax deductible? ›
Tax deductions for moving expenses
For most taxpayers, moving expenses are no longer deductible, meaning you can no longer claim this deduction on your federal return. This change is set to stay in place for tax years 2018-2025.
Why are my moving expenses not deductible? ›
Key Takeaways
Moving expenses are no longer eligible for a federal tax deduction, but some states may still provide a deduction. To qualify for the deduction, the distance between your new job and your former home must be at least 50 miles farther than your previous employer is from that home.
What is the IRS 50 mile relocation rule? ›
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. TIP To see if you meet the distance test, you can use the worksheet below.
What is considered reasonable moving expense? ›
Reasonable costs are costs that are considered to be reasonable under the circ*mstances of a particular move (such as travel from the old to the new residence made via a conventional mode of transportation using the shortest and most direct route available and in the shortest period of time normally required to travel ...
What are non qualified moving expenses? ›
How to Report Moving Expenses. Both qualified and non-qualified moving expenses have to be reported on Form W-2. Non-qualified moving expenses are subject to withholding at the time the reimbursem*nts are made.
When were moving expenses deductible? ›
The Tax Cuts and Jobs Act of 2017 eliminated the deduction for moving expenses for most taxpayers between 2018 and 2025, except certain members of the Armed Forces and their families. Then, it reverts to previous tax law.
Can I deduct moving expenses if I am self-employed? ›
To deduct moving expenses as a self-employed person in a sole proprietorship or partnership, you must work full time at the new location for: at least 39 weeks during the first 12 months. at least 78 weeks within the first 24 months.
What deductions can I claim? ›
If you itemize, you can deduct these expenses:
- Bad debts.
- Canceled debt on home.
- Capital losses.
- Donations to charity.
- Gains from sale of your home.
- Gambling losses.
- Home mortgage interest.
- Income, sales, real estate and personal property taxes.
This usually covers the employee's reasonable moving and other work-related expenses, to relieve the employee and their family of the expensive burden of relocation.
How to calculate tax on relocation allowance? ›
The tax rate will be the same as the tax rate of the employee's income, based on the W4 on file as well as the employee's FICA eligibility. An employee can utilize the tax withholding estimator https://www.irs.gov/individuals/tax-withholding-estimator to determine the impact of the imputed income.
Are moving expenses an above the line deduction? ›
Above-the-line deductions are things like educator expenses, moving expenses, contributions to savings accounts (there's a full list below). Below-the-line deductions are the everyday expenses you're most familiar with: business mileage, rent, office supplies.
What is the IRS regulation for moving expenses? ›
Moving expense deduction eliminated, except for certain Armed Forces members. For tax years beginning after 2017, you can no longer deduct moving expenses unless you are a member of the Armed Forces on active duty and, due to a military order, you move because of a permanent change of station.
Which of the following are qualified moving expenses? ›
Deductible moving expenses - You can deduct expenses that are reasonable for the circ*mstances of your move. Your eligible moving expenses include household goods, personal effects, storage and traveling expenses (including lodging) to your new home. You can't deduct any expenses for meals.
What states allow you to deduct moving expenses? ›
With the change to the moving expenses tax deduction, only seven states allow moving deductions or exclude moving expenses from taxable income:
- Pennsylvania.
- New York.
- Massachusetts.
- New Jersey.
- Arkansas.
- California.
- Hawaii.
Allowable living expenses include those expenses that meet the necessary expense test. The necessary expense test is defined as expenses that are necessary to provide for a taxpayer's (and his or her family's) health and welfare and/or production of income.
What is included in taxable moving expenses? ›
Moving expenses that are taxable but NOT reimbursable include: Qualified residence sale, purchase, and lease expenses, including: Home improvements. Real estate taxes.
Which of the following expenses does not qualify as a military personnel moving expense? ›
Deductible moving expenses - You can deduct expenses that are reasonable for the circ*mstances of your move. Your eligible moving expenses include household goods, personal effects, storage and traveling expenses (including lodging) to your new home. You can't deduct any expenses for meals.
What are relocation costs? ›
Relocation costs are any expenses that companies offer when providing a package to employees who move to another location. These are often packages that companies assemble to help cover common living and relocation expenses.
