(This is Part 4 of an eight-part series. See Part 1, Part 2, Part 3, Part 5, Part 6, Part 7 and Part 8.)
Whenever I see a moving van, I think to myself, “I wonder if those folks are deducting their moving costs.” Although not every household move is tax-deductible, if you change your work location within 12 months before or after the move, your expenses could qualify for Uncle Sam’s generous moving expense deductions.
Both renters and homeowners are eligible for this tax break. Whether you itemize personal tax deductions, or claim the standard tax deduction, you can still deduct qualified moving costs on line 26 of your IRS Form 1040.
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IRS Form 3903 must be used to list your deductible moving expenses. But there are two eligibility tests that must be passed.
THE VITAL JOB RELOCATION TEST: The first and most important moving expense-deduction rule is the job relocation test. To qualify, your new job location must be at least 50 miles further away from your old residence than was your old work site.
It doesn’t matter if you changed employers, stayed with the same employer, became self-employed, or took your first job.
To illustrate, suppose your old home was six miles from your old job location. To qualify from the moving expense tax break, your new job site must be at least 50 miles further away from your old home.
In this example, that’s six miles plus 50 miles, or 56 miles. Either spouse can qualify. Congratulations if you met this first test; now you have to meet a more difficult test.
THE WORK TIME TEST: The second moving-cost eligibility test involves the length of your work time in the vicinity of your new job location. It doesn’t matter if you change jobs, location, or employer, but to qualify you must stay in the vicinity and work full-time at least 39 weeks during the 52 weeks after your household move.
Part-time work doesn’t count. But either spouse can qualify. However, time spent searching for employment is irrelevant.
If you are self-employed, the test is tougher. Self-employeds must work at least 78 weeks full-time in the vicinity of their new job location during the 104 weeks after the residence move.
This tough rule prevents self-employed individuals from deducting moving expenses if they only work a few hours each week. However, the work time test is waived for disability, job layoffs, and the taxpayer’s death.
NO NEED TO MEET THE WORK TIME TEST BY APRIL 15, 2006. As long as you meet the 50-mile additional job distance test, if you have not yet met the 39-week or 78-week work time test by April 15, 2006, when your 2005 income tax returns are due, you can still claim the deduction if you plan to continue working in the same vicinity.
However, if you later don’t meet the 39-week or 78-week work time test, then you must amend your 2005 income tax return to delete your moving cost deduction and pay the extra income tax.
Another alternative, which most tax advisers don’t recommend, is avoid the deduction when filing your original tax returns but later amend your return to claim a tax refund when you meet the work time test. The prime reason this choice is not recommended is that you might forget to later claim the large moving cost deduction.
DIRECT MOVING COST DEDUCTIONS ARE UNLIMITED. If you passed the two eligibility tests above, there is no limit to your direct moving cost deductions.
Examples of deductible household moving costs include: expenses for hiring a moving van, shipping your pets, in-transit storage costs up to 30 days, moving insurance, and even costs of transporting your “personal effects” such as your horse, yacht, and recreational vehicle.
If you drive from your old to your new home, you can deduct actual out-of-pocket costs, such as gasoline and oil, but not auto repairs and depreciation. Or, you can elect to deduct 15 cents per mile for 2005 household moves until Aug. 30, 2005, and 22 cents per mile for moves until the end of 2005. In addition, you can deduct parking and tolls.
NO DEDUCTIONS FOR INDIRECT MOVING COSTS. But non-deductible expenses involving your household location change include pre-move inspection trip fares, meals and lodging enroute, and real estate sales or lease commissions.
The expenses of moving your cook, maid, chauffeur, nurse, nanny, and butler are also non-deductible indirect moving costs.
If your employer reimbursed you for indirect moving expenses, such as a loss on the sale of your home, that reimbursement is taxable income to you. For this reason, it is usually best to ask your employer to pay any indirect moving costs directly rather than reimbursing you and raising your taxable income for the non-deductible indirect moving cost.
HOW EMPLOYER REIMBURSEMENTS AFFECT MOVING COST TAX DEDUCTIONS. When your employer reimburses you for your direct moving costs for which you have receipts, you have no additional taxable income because the reimbursement is offset by the deductible moving costs.
However, if your employer gave you a flat moving cost allowance, regardless of your actual moving expenses, the excess allowance exceeding your deductible direct moving costs becomes taxable income. Thus, employer reimbursement for non-deductible indirect moving costs becomes taxable income.
Military taxpayers have special rules that do not include in gross income the costs of moving and storage expenses paid by the military, or cash reimbursements that do not exceed actual expenses paid for permanent changes of duty station, including moving your spouse and dependents.
Only reimbursements in excess of actual moving expenses are included in the service member’s gross income, while expenses exceeding reimbursements are tax-deductible. For full details, please consult your tax adviser.
(For more information on Bob Bruss publications, visit his
Real Estate Center).
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