How to Deduct Moving Expenses From Your Taxes

Note:Active-duty military members who have to move due to a military order are exceptions to the Tax Cuts and Jobs Act, and can still deduct their moving expenses. The Tax Cuts and Jobs Act, passed in December 2017, eliminates the deduction for relocation expenses for most Americans. This adjustment, which will be in effect from 2018 to 2025, is part of a larger push to streamline the tax code and cut tax rates. However, there are exceptions for active-duty personnel of the United States Armed Forces who have to move due to a military order.

Are you aware that you could potentially save a lot of money by deducting your moving expenses from your taxes? That's right! The Internal Revenue Service (IRS) allows individuals who have experienced a qualifying move for work-related reasons to claim a moving expenses tax deduction. Understanding the eligibility criteria, following the relevant steps, and properly recording your spending will help you uncover this significant tax benefit and perhaps keep more of your hard-earned money in your pocket.

In this comprehensive guide, we will look into the area of moving expense deductions and provide you with the knowledge and resources you need to navigate the process properly. The information provided in this guide is based on IRS tax deduction policies. Understanding how to claim moving expenses on taxes matters whether you're planning a local move or a cross-country move. We will review how to deduct moving costs and the IRS's eligibility criteria for moving expense deduction. In addition, we will explore the importance of documenting moving expenses for tax purposes and provide practical recommendations to ensure you have the appropriate evidence to support your deduction claim.

Guide to Tax Deductions for Moving Costs

The IRS offers the moving expenses tax deduction, which allows eligible taxpayers to lower their taxable income by deducting qualified relocation expenses. Individuals who have experienced a qualifying move for job-related purposes may benefit significantly from this deduction. Understanding the complicated rules of this benefit can help you save a significant amount of money on your taxes.

To take advantage of the moving expenses tax deduction, you must first understand the eligibility requirements and IRS limitations. The IRS has certain criteria to ensure that the deduction is used correctly. Familiarize yourself with these criteria, such as the requirement that the move be directly related to starting a new job or continuing an existing position in a new location. Understanding these eligibility considerations is critical for deciding whether your move is eligible for the deduction. Furthermore, be aware of distance and time tests that evaluate the proximity of your new job location to your former residence and the duration of your employment in the vicinity of the new job.

The IRS carefully scrutinizes deductions for moving expenses on tax returns, as outlined in Publication 521. To qualify for the deduction, you must meet the following criteria:

1. The move must be job-related.

2. You must pass a distance test.

3. You must satisfy a time test.

Understanding Eligibility for Moving Expense Deduction

To ensure you can write off moving expenses from your taxes, it's important to understand the IRS's eligibility standards for moving expense deduction. The reason for your relocation is an important consideration. To qualify, the move must be directly tied to starting a new job or continuing an existing job at a new location. The IRS requires that the distance between your new job location and your prior home be at least 50 miles greater than between your old job location and your former home. In addition, you must work full-time in the general area of your new position for at least 39 weeks during the first 12 months after the move.

Use this quick checklist to see if your move qualifies for a federal moving expense tax deduction under IRS rules.

Let's break this down to understand what it means:

The move must be related to the start of work

The move must be related in time and location to where you start working. In simple terms, being related to time refers to your move within one year of starting work at a new physical place. This does not mean that you must decide to work before you move.

Note: You will likely not be allowed to deduct moving expenses if you did not move within the one year that you started work at a new location without good reason. In simple terms, to be related to the location, your new job must be closer to your new house than your old house was to your old place of employment. There is still a chance that you can deduct moving expenses if there is a particular reason dealing with the employer or if your commute is shorter or less expensive from your new home to your place of employment.

One quick note, home is a primary residence. It can be virtually anything, including a houseboat, trailer, apartment, house, etc. Summer homes or homes owned by someone else are not eligible for moving expense deductions.

The move must pass the "Distance Test"

The new job location must be 50 miles farther from your old home than your previous place of employment. For example, if your old job was 5 miles from your home, your new job must have been at least 55 miles from your old home to deduct moving expenses. A quick note, you should always use the shortest route when calculating the distance.

How to figure if you meet this:

1: How many miles was it from your old home to your new job location?

2: How many miles was it from your old home to your old job location?

3: Use this: #1 - #2 = ?

If you have an answer above 50, you will meet the Distance Test requirement. Please note that your main job location refers to your primary workplace. This would be considered to be the place where you work most often and spend most of your hours each week.

Employees time test

This is also called the 39-week test. As an employee, you must work at least 40 hours per week for a minimum of 39 weeks within the first 12 months that you arrive at your new location.

1: You may only count the time spent as an employee, no self-employment hours can be counted.

2: You are not required to work for the same employer.

3: The 39 weeks do not have to be concurrent with one another.

4: The 39 weeks must be spent at an employer in the same general area.

If your job ends early and you don’t meet the 39-week requirement, you must file an amended return and repay the deduction unless you qualify for an exception. The IRS may charge interest starting from the original filing date, not from when the mistake is found.

Exception to the Time Test Requirement

If you don’t meet the 39-week requirement because of events beyond your control, like losing your job, a disability, or a death, you may still qualify for a partial deduction. The IRS allows exceptions if you planned to meet the requirement but couldn’t because of something unexpected. In these cases, you’ll need to provide documents like a termination letter, medical records, or a death certificate to support your claim. You must still meet all the other rules and have spent the money to start work at the new location.

Self-Employed time test

To meet the self-employed time test, you must work at least 40 hours per week for 39 weeks within the first 12 months of arriving at the new location. You must also work at least 40 hours per week for 78 weeks within the first 24 months you arrive at the new location.

1: You may count both employed and self-employed work.

2: You are not required to work for the same employer or be self-employed in the same line of work or trade during the 78 weeks.

3: All work counted must be done within the same general commuting area.

To begin, keep careful records of all your moving expenses, including receipts, invoices, and contracts. This documentation should disclose the nature of the expenses, the dates of payment, the amounts paid, and the names of the people involved. Fill out Form 3903, Moving Expenses, and attach it to your tax return. You must fill out the form with information about your move and calculate the deductible amount. Include all allowable expenses and double-check your numbers.

Military Documentation Requirements

Military members on active duty who move under official orders are exempt from the distance and time test. To claim this deduction, military personnel must keep a copy of their Permanent Change of Station (PCS) orders. These orders must show that the move was ordered by the military. Receipts and records of expenses must also be kept to support the deduction.

If you are in the military and need help with your moving deduction, here are some free or low-cost resources that can help you move forward if you're unsure what to do next.

1. IRS Helpline: 1-800-829-1040 – for general tax questions.
2. VITA (Volunteer Income Tax Assistance): Offers free tax prep for qualifying taxpayers, including military families.
3. Military OneSource: A DoD-funded platform providing tax support and free consultations for active-duty service members.

Moving Expenses That Can Be Deducted

Regarding your annual tax record, knowing what relocation expenses are tax-deductible might be a game-changer. You need to know that not all moving expenses can be deducted, but there are several that can help you maximize your tax savings. For example, you can deduct the expense of packing and shipping your household goods and personal belongings. This includes the expense of transporting your household goods from your previous residence to your new residence and the cost of storing and insuring these items while in transit.

If your employer provided relocation assistance, check Box 1 of your W-2 to see if it was included in your gross income. If it wasn’t, you can’t deduct those expenses. Doing so could cause you to underreport your taxable income.

If you hired moving services to help with your move, you can also subtract those costs. You can either hire professional movers or rent a moving truck. Keep accurate records of all your moving expenses. You’ll need receipts, bills, and other documents when claiming these deductions. Every penny saved matters, and these deductions can make a big difference on your tax return.

You can only deduct storage expenses for 30 consecutive days after your household goods are moved out. If storage lasts longer, you need to separate the deductible and non-deductible costs. Otherwise, you could lose the full deduction.

What You Can't Claim on Your Taxes

You cannot typically deduct some moving-related expenses on your taxes. These are some examples:

1. Meals: Even if you ate them while traveling to your new home, the expense of meals during your move is not deductible.

2. House-hunting trips: Expenses required to search a new home or apartment are not deductible. Transportation, housing, and meals are all included.

3. Temporary living expenses: The costs are generally not deductible if you need to stay in temporary housing while looking for a permanent home.

4. Security deposits: Security deposits paid for a new apartment or home cannot be deducted as relocation expenses.

5. Driver's license and vehicle registration in your new state or region are not deductible moving expenses.

6. Closing costs, real estate commissions, or mortgage fees are not deductible as moving costs.

7. Losses on the sale of your previous property: You cannot deduct a loss on the sale of your previous home as relocation expenses.

Use this guide to find out which moving expenses you can deduct and which you can’t.

These examples show how much different taxpayers saved by claiming moving expenses as a tax deduction. Note: These examples are for illustration only. They are not based on real individuals or actual tax records.

Documenting Your Moving Expenses

Organization is essential when documenting moving costs for tax purposes. Begin by making a separate file or folder for all your moving-related documents. This will make it easier to find and provide the essential information when it comes time to claim the deduction. Include receipts for expenses like packing supplies, moving truck rentals, fuel costs, transportation costs, and storage fees. If you hire professional movers, have a detailed invoice showing the services completed and the corresponding charges.

Besides these direct charges, track and document any other costs related to your move. This may include temporary lodging, meals while moving, and even travel fees if you must stay overnight while traveling to your new place. This not only guarantees that you follow IRS guidelines for moving expense deduction, but also that you maximize your eligible deductions.

Steps to Claiming Moving Expenses on Your Taxes

Follow these steps to successfully claim a moving expenses deduction on your taxes:

1. Collect Your Documentation: Gather all pertinent receipts, invoices, and other supporting documentation of your moving expenses. Receipts for packing materials, transportation costs, storage fees, and other applicable expenses are included.

2. Fill out Form 3903: Form 3903, Moving Expenses, is the official IRS form for reporting relocation expenses. Provide correct information about your relocation, such as the date of the move, the distance traveled, and your new job location.

3. Calculate Your Deductible Amount: Using the information in your papers, tally the eligible relocation expenses you incurred. To maximize your deduction, be diligent and include all qualified charges.

4. Attach Form 3903 to Your Tax Return: Once you have completed Form 3903, attach it to your tax return. This form provides proof of your eligible moving costs and substantiates your deduction claim.

5. File Your Tax Return: Submit your tax return, including Form 3903, by the deadline. To avoid any IRS problems, you must submit your return accurately and on time.

Maximizing Your Moving Expense Deduction

Determine all acceptable expenses, such as transportation, packing supplies, storage units, and even housing. Plan your relocation to ensure that it corresponds with work start dates. This allows you to meet the IRS criteria while maximizing your deduction amount. Track the costs of hiring movers or renting a truck for local moves. Long-distance or international moves require careful monitoring of transportation, accommodation, and other costs.

When moving to another country, you must leave out costs for customs, visas, import duties, and housing. If you include them, you could lose the full deduction and face IRS penalties for misreporting.

Remember that consulting with a tax professional is always a good idea to ensure you take advantage of all possible deductions and credits. You can successfully manage the moving expense deduction and maybe lower your tax liability with their assistance.

What Can Go Wrong and What Might Trigger an IRS Audit

When deducting moving expenses from your federal income tax, you must be aware of potential pitfalls and audit triggers to safeguard yourself from unnecessary complications. One common pitfall to avoid is incorrectly claiming a home office deduction with the deduction of moving expenses. While you may be eligible for both deductions separately, combining them without proper justification can raise red flags and increase the likelihood of an audit. To prevent this, ensure that you accurately separate and document each deduction on your federal tax return, providing the necessary evidence to support your claims for moving expenses and home office deductions, if applicable. Review IRS guidelines to make sure your reporting is accurate and reduce your risk of an audit. A tax professional can help you use every deduction and credit you qualify for.

Another audit trigger is an unusually high or disproportionate moving expense deduction compared to your overall income. If your deduction of moving expenses appears significantly large with your income level, it can draw attention from the IRS. To mitigate this risk, ensure that your claimed expenses are reasonable and aligned with the eligibility criteria set by the IRS. Keep detailed records of all expenses, such as receipts, invoices, and contracts, to substantiate your deductions. Double-check your calculations and review the IRS guidelines to ensure accurate reporting.

If you fail to meet the time test and no longer qualify for the deduction, you must file an amended return using Form 1040-X. If you don’t, you could owe back taxes, penalties, and interest if the issue comes up during an audit.

If your employer covered any part of your moving expenses, check whether the payment appears on your W-2 or was made through an accountable plan. If the payment wasn’t part of your taxable income, subtract it from your deductible expenses. Otherwise, you may be flagged for claiming the same expense twice, which could lead to an audit.

By being proactive and attentive to these potential pitfalls and audit triggers, you can navigate the deduction of moving expenses smoothly while reducing the likelihood of encountering tax-related issues.

Before filing, use this table to make sure you follow IRS guidelines exactly and avoid mistakes that can lead to denied deductions or trigger an audit.

Disclaimer:This guide provides a basic overview of IRS rules for deducting moving expenses, but it should not replace professional advice. Tax situations can vary, especially when they involve mixed employment, partial reimbursements, or rules that differ by state. Always check with a licensed tax preparer or CPA to make sure you’re following all tax rules. Tax law changes could also affect your eligibility in future years.

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