In the past, American taxpayers could deduct moving expenses from their federal income taxes if the move was for work or to look for work. With the passage of the Tax Cuts and Jobs Act in 2017, though, that deduction was eliminated for the majority of taxpayers.
Under the new rules, only active duty members of the military can deduct moving expenses if they are moving from one duty station to another on orders. Therefore, if you’re planning to move in the near future, don’t expect a tax break.
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Tax Cuts and Jobs Act
Prior to the Tax Cuts and Jobs Act (TCJA) anyone who met the criteria for a moving expense deduction could take it. Many taxpayers were able to deduct thousands of dollars in expenses incurred with a move and reduce their tax bills. Currently, anyone who incurred moving expenses between 2015 and 2017 who did not take the deduction is eligible to file an amended return and claim a refund on any tax overpayments for those years.
However, if you want to take the deduction for those years, the move must meet certain criteria. First, you must have moved within one year of starting the new job. Second, the new job must be at least 50 miles farther from your former home than your old job was. In other words, if the distance from your old home to your old job was 25 miles, but the distance from your old home to your new job is 83 miles, then it meets the criteria. Typically, when you move to a new state for a job, this criteria is easily met.
Finally, you must meet a “time test” to qualify for the deduction on your amended return. You must work full-time for the new employer for at least 39 weeks in the 12 months following the move, or be self-employed for 39 weeks in the first 12 months and a total of 78 weeks over the following 24 months.
Again, under the terms of the TCJA, you can only make amendments to prior returns for years 2015 through 2017. If you moved in 2018 or later, you cannot take the moving expense deduction, unless you are an active duty member of the military. The TCJA preserved this tax deduction for military members who receive orders for a permanent change of station. This includes moving from home to your first post, from one post to another, and from your final duty post back to the U.S. or from a nearer point to the U.S.
Military personnel cannot deduct moving expenses that have been reimbursed by the government. They also have only one year to claim the expenses if they are moving based on final orders. Only qualified expenses are allowed, and must be reasonable. Currently, these rules are in place until 2025, but lawmakers are pushing forward with efforts to make them permanent.
Who Can Deduct Moving Expenses?
Again, only active duty military personnel who move under orders can deduct moving expenses for moves made in 2018 or later. If you are not in the military and moved between 2015 and 2017, you may benefit from filing an amended tax return if you did not claim the expenses previously.
Moving Expenses by State
Although the IRS limits who may deduct moving expenses from their federal taxes, some states still allow taxpayers to make the deduction from their state tax returns. Not all states implement changes in federal tax laws into their tax codes, so the moving expense deduction is still available in the following states:
Determining whether you can take the moving expense deduction is only the first step. The IRS only allows certain expense deductions — and not everything associated with your move qualifies. For example, the IRS only allows deductions of “reasonable” expenses. They require that you take the shortest, most direct route to your destination, and any deviations are not deductible.
With that in mind, under IRS rules, only the following are considered qualified moving expenses:
- The use of your personal car to move your personal belongings and family, as determined by actual expenses or the standard mileage rate;
- The cost of packing/crating personal belongings;
- The cost of a moving truck or service;
- Fees associated with disconnecting utilities;
- Costs for shipping cars and pets to your new home;
- Storage expenses for up to 30 days after items are removed from your former home and before they are moved into your new home;
- Travel expenses, including lodging.
Moving is expensive, but not all of the expenses you incur are tax deductible. You also cannot deduct any expenses that are already reimbursed by the government. The IRS does not allow taxpayers to include any of the following expenses in their deduction:
- The purchase of a new home;
- Expenses associated with driver’s licenses or registering your car;
- Any expenses associated with the sale of your previous home, including improvements, costs for the sale, losses from the sale, mortgage penalties, and real estate taxes;
- Costs for entering or breaking a lease, including security deposits;
- Househunting expenses;
- Storage charges beyond what’s already allowed;
- Fees or losses from canceling memberships or services.
Again, the IRS only allows “reasonable” moving expenses. You cannot deduct expenses that aren’t directly associated with your move, especially if they require you to deviate from the shortest route to our destination. For example, if you are moving from Boston to Miami, and decide to take a side trip to enjoy Disney World for a day along the way, the expenses from Orlando are not deductible because Orlando is not along the shortest route and the expenses are not reasonably associated with your move.
How to Deduct Moving Expenses
If you qualify to deduct moving expenses from your taxes, you must complete Form 3903, Moving Expenses, and submit with your Form 1040. On this form you can determine whether you’re eligible to take the deduction, and how much. If the government already reimbursed you for moving expenses, you must deduct that reimbursement from your total expenses. You can take the deduction only if your expenses exceed reimbursement.
Taking the moving expense deduction requires keeping meticulous records of your expenses. Keep all receipts from the move, and be prepared to provide them as evidence of your deduction if you are audited.
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