Moving Expenses Deduction * Form 1040
How to Use Moving Expenses Deduction to Lower Your Taxes
There are a number of tests that the IRS says you must satisfy to qualify for the moving expenses deduction. The primary test is that your move must be work related in order to deduct any relocation costs. There’s also tests for time and distance that will be explained shortly.
To claim the relocation expenses deduction, you’ll have to use the long Form 1040, but there is no requirement for you to itemize any other deductions on a Schedule A. The IRS Form 3903 is used to list the various allowable expenses, and it’s quite easy to complete.
Once that is done, the total is transferred to the front of the Form 1040, and listed as an adjustment (subtraction) from your gross income.
This deduction can be used by any taxpayer that satisfies the tests, no income limits. An important caveat – be sure to maintain accurate records of the move and keep your receipts.
The Distance Test
This test is usually the more difficult to satisfy in order that you qualify for the moving expenses deduction. It wasn’t designed to make your daily commute to your current job more convenient to be sure. This is called the 50 mile test.
This test requires that the distance from your previous home to your new job location must be at least 50 miles greater than the distance from your previous home to your old job location. If not, the moving expenses deduction cannot be used.
The IRS also clarifies the distance calculation. You’re required to use the shortest and most commonly traveled route. You can’t detour through the scenic countryside to meet the mileage requirement.
The Time Test
What’s that you say? Do I have to speed to my new job to pass this test? No, it is simply an IRS requirement to make sure that we don’t use these tax breaks for some purpose not intended by the regulation. The moving expenses deduction can be used if your move was accomplished within one year of starting your new job. A second requirement is that you work at least 39 weeks on a full time basis in the first year of your new job. The weeks don’t have to be consecutive, nor do they have to be with the same employer.
If you happen to be self-employed, there are some different rules to take the moving expenses deduction. You’re bound by the time test with the one year requirement. However, you must work on a full time basis in your entrepreneurial endeavor for at least 78 weeks during the first 24 months. These weeks, as well, don’t have to be consecutive.
Accurate Records and Receipts – Don’t leave home without them
Assuming that you’ve met the distance and time requirements, you need to gather your receipts, mileage logs, and record dates. The moving expenses deduction includes such items as the moving van to transport furniture and household goods and personal property. Certain storage and insurance fees, as well as utilities hook-up or disconnect charges qualify too.
There are certain expenses for lodging and travel near your former and new homes that are deductible. If you decide to ship your auto, those costs are deductible also. Most taxpayers drive their personal auto, and for 2016, you can deduct .19 a mile if you use it to move. Don’t forget your family pet. Expenses to move him to your new home are also deductible.
Some Other Considerations for the Moving Expense Deduction
Taxpayers who are married and file a joint tax return can meet the time and distance tests as long as only one of the spouses qualifies. To meet the time of employment requirement, you cannot combine the time that both spouses worked.
Sometimes, one of your employers may reimburse you for a part or all of your moving costs. In those cases, you can’t take the deduction if all costs were reimbursed. No double dipping allowed.
One final caveat. If you take the moving expenses deduction and fail to make the time and weeks worked test, it must be reported. You have the choice of amending the tax return for the year the deduction was taken or you can report the amount of the deduction in your income the following year.
There are different rules for active duty military personnel that are covered in the IRS Publication 521. As a reminder, you must maintain accurate records to substantiate the moving expenses deduction.
An accountant and tax preparer by profession, Gust’s true passion lies in his company blog titled “HBS Financial Group, Ltd.”. Through this venue, he not only tries to teach individuals about budgeting, money management, and taxation but he writes the majority of the articles as well.