As the weather and economy continue to warm up, employers around the country may be looking to hire more workers, including some already employed at high-paying jobs. If you go to work for a new firm — or your current employer transfers you to a different branch — you may be able to deduct certain moving expenses if you pass two key tax law tests.
But if your move isn’t job-related — for example, you’re moving into a bigger house where you’ll raise your kids or downsizing to a smaller home now that your children are grown — no deduction is generally allowed.
Two Tax Law Tests
Assuming the reason for your move isn’t personal, you must still meet the following tax law tests for distance and time:
1. Distance Test. Your new job location must be at least 50 miles farther from your old home than your old job location was from your old home. The IRS uses the shortest of the most commonly traveled routes to measure the distance between the two points.
Example. Ms. Smith works for ABC Co. She’s transferred from an office in Eastside to a comparable position in Westside. Before she moved, Smith lived 10 miles from her job in Eastside. But her new job location in Westside is 55 miles from her previous home. Smith’s new home is 25 miles from her new job in Westside.
Because Smith’s new job is only 45 miles farther from her old home than the old job was, she is not permitted to deduct moving expenses. In other words, the IRS doesn’t care how far away you live from your new job. This isn’t part of the distance test.
2. Time Test. If you are an employee, you must work full-time for at least 39 weeks during the first 12 months after you arrive in the general area of the new job. But you don’t have to work for the same employer as long as the 39-week test is satisfied.
Example. Mr. Jones works for Company A. He gets a new job with Company B and subsequently moves 100 miles farther from his old home than his old job location was from his former home. Jones works for Company B for six months before quitting to join Company C, where he still meets the distance test. He stays at Company C for another six months.
During this time, Jones stays in the home he acquired when he started work at Company B. Because he meets both the distance and time tests, Jones qualifies for a moving expense deduction.
Self-employed individuals must work full-time for both:
- At least 39 weeks during the first 12 months, and
- A total of at least 78 weeks during the first 24 months after they arrive in the general area.
Important Note: There are certain other exceptions to the time test. (See “When Time Doesn’t Matter,” at right.)
Rules for Deductible Expenses
If you pass the two tests for a job-related move, you can deduct the reasonable costs of moving your household goods and personal effects to your new home, as well as the travel expenses (including lodging but not meals) between the two locations. Normally, this will include charges by a moving company or a truck rental. You just need to provide proof of your new employment and its location.
As stated above, the costs must be “reasonable.” Therefore, you can deduct the cost of traveling on a direct route from one location to the other. But costs attributable to any side trips for sightseeing are not deductible.
If you travel by car, you may deduct the actual expenses for the move, assuming you keep all the necessary records or opt for an IRS-approved flat rate. The flat rate for a job-related move in 2015 is 23 cents per mile (plus tolls and parking fees). This rate, which is indexed annually, was 23.5 cents per mile in 2014 when gas costs were higher.
Important Note: Certain “indirect costs” of moving — such as meals, house hunting trips, temporary living expenses, attorney fees and real estate commissions related to the move — are not deductible.
The deduction generally covers qualified expenses for moving yourself, your spouse (if married) and other members of your household, such as dependent children. A “member of your household” must reside in both the old and new homes. (See “No Deduction for On-the-Move Newlyweds,” at right.)
Rules for Employer Reimbursements
Some employers have programs for reimbursing employees for moving expenses. If reimbursements are made under an “accountable plan” that meets IRS standards, the benefits are tax-free to the employee, assuming any excess reimbursement is returned to the company within a reasonable period of time.
For payments made under an unaccountable plan, the reimbursements are treated as taxable compensation to the employee. However, if you meet the tax law tests above, you can offset the income by deducting job-related moving expenses on your personal return, just like a taxpayer who isn’t reimbursed.
Good News about Moving Expense Deductions
If you qualify under the complex tax rules, moving expenses are deducted “above the line” on your Form 1040, thereby reducing adjusted gross income (AGI) for other purposes. What’s more, the deduction isn’t subject to the “Pease rule” that reduces most itemized deductions for upper-income taxpayers. If you plan to deduct moving expenses on your 2015 tax return, remember to keep detailed records in case the IRS decides to challenge your moving-related tax claims.
When Time Doesn’t Matter
The time test, described in the main article, doesn’t have to be met if you qualify under one of the following exceptions:
- You are in the Armed Forces and moved because of a permanent change of station.
- Your main job location was outside the United States, and you moved to the United States because you retired.
- You’re the survivor of a person whose main job location at the time of death was outside the United States.
- Your job at the new location ends because of death or disability.
- You’re transferred for your employer’s benefit or laid off for a reason other than willful misconduct.
To claim the last exception, you must have obtained full-time employment and expected to meet the test when you started the job.
No Deduction for On-the-Move Newlyweds
The taxpayer in a recent U.S. Tax Court case could not deduct expenses he claimed for moving his new wife’s personal effects. (Palmer v. Commissioner, T.C. Memo 2015-30.)
Mr. Palmer moved several times within Minnesota in 2008 and 2009 while he was switching jobs. Late in 2008, he married a woman from South Carolina and subsequently deducted a total of about $10,000 for a series of three moves of her belongings from South Carolina to Minnesota.
Initially, the Tax Court determined that Palmer failed to meet the 50-mile test. In addition, the court decided that the cost of moving his wife’s belongings didn’t qualify for the moving expense deduction because she wasn’t a resident of both his old and new homes. As a result, the Court didn’t see any reason to proceed further.