Summer is peak season for families to pack up, head to a new town and start fresh. However, moving doesn’t have to cost a fortune. In fact, there are tax deductions available for moving costs that can help you reclaim some of your hard-earned money.
To deduct moving expenses, you must satisfy a two-part test: the distance test and the time test.
Are you moving for a job? To deduct expenses, your move must be for a position change within your company, a job relocation within the company or a new job. You also have to begin work at your new job within one year of incurring the moving expenses.
How far is your new job? If your move wasn’t covered by your employer, moving expenses may be tax deductible if the new work location meets the “distance test.” Your new office must be at least 50 miles farther from your old home than your old workplace was to qualify for the tax deduction.
Are you working full-time in your new city? The second test you need to meet is the “time test.” You may qualify for a tax deduction if you work full-time in the general area of your new workplace for at least 39 weeks during the first 12 months after you move. If you’re self-employed, you need to work at least 78 weeks over the first two years following your move. In both cases, the weeks of employment do not have to be consecutive or even with the same employer.
Members of the armed forces who move due to military order or a permanent change of station don’t need to meet the distance or time tests to receive tax deductions for moving costs.
Can you claim out-of-pocket moving costs? Deductible out-of-pocket moving costs include expenses for packing and moving your belongings. These expenses can range from temporary storage, insuring valuable items, utility connection costs and even shipping pets. You can also deduct the price of gas if you’re driving your own car to travel to your new home, as well as any lodging expenses incurred during the trip. However, meals don’t qualify as an eligible moving expense, so be mindful of food and beverage costs on the way to your new home.
If your employer covers most of the costs of your move, you may not be eligible to deduct out-of-pocket moving expenses.
There are a few special circumstances to be aware of when determining whether you qualify for moving-related tax deductions. These situations include:
- If your move is delayed, you must move within 12 months of starting your new job.
- If you or your spouse have difficulty finding work or decide not to go back to work, you may still be eligible for a deduction. Only one spouse needs to meet the employment rule of working full-time for at least 39 weeks.
- If you’re laid off after the move, the IRS will waive the 39-week test.
Moreover, if your employer pays for some of the moving costs the IRS does not allow as part of the deduction, you need to include those expenses as part of your income on your tax return and pay taxes on those reimbursements. However, if your employer pays part of your moving costs by including it as part of your salary, don’t forget to claim your deductible moving expenses.
Lisa Greene-Lewis, lead certified public accountant, American Tax & Financial Center at TurboTax, has more than 15 years of experience in tax preparation, including positions as a public auditor, controller, and operations manager. For up-to-date tax tips and tax news, go to the TurboTax Blog.