Relocating often comes with a lot of stress and anxiety. There’s planning and scheduling, closing out your old home and setting up your new one, arranging transport of your household belongings, and making sure nothing gets lost or broken on the way.
There’s also the cost. Moving can be expensive. You may be wondering whether you can deduct any of your moving costs from your income taxes.
Many other posts on this blog offer great advice for first-time movers, packing for a move, moving with children, and moving an office. This post provides information about tax deductions for moving expenses.
Here’s the bad news.
Moving Expenses Are Mostly No Longer Deductible
Moving expenses currently aren’t deductible from federal taxes for most of us. With one notable exception, the 2017 Tax Cuts and Jobs Act (TCJA) eliminated the moving expense federal tax deduction for taxpayers starting in 2018.
The Exception: Active-Duty Military
The exception is if you are active-duty military and moved because of a permanent change of station. If so, you may be able to deduct moving expenses from your federal income taxes.
This applies to moves from your home to your first post of active duty, moving from one post to another, and moving from your last post to your home within a year of ending your active duty.
In this case, deductible expenses include transporting and storing household goods and travel expenses, including gas, tolls, and parking for your personal vehicle. Lodging costs are also deductible (but not meals). The costs of shipping your private vehicle and disconnecting utilities are also deductible.
If you’re an active-duty military member being transferred to a permanent station outside the U.S., the cost of storage for household and personal belongings are deductible for the entire time you’re at the location.
The spouse or dependent of the active-duty military member may also deduct their moving expenses. A spouse or dependent child of a military member who is imprisoned, deceased, or deserted may also qualify to deduct moving expenses.
Military members and family members use Form 3903, Moving Expenses to report their moving expenses, and deduct them as an adjustment to income on Form 1040. IRS Publication 3, Armed Forces’ Tax Guide, pp. 14-15, describes the tax deduction for active-duty military and how to claim it.
If you moved in 2018 or later, the IRS has a short online tool to help you determine whether your expenses are deductible.
Moving Expense Deduction Is Eliminated Until At Least 2025
Most provisions of the TCJA are set to expire at the end of 2025 unless Congress extends them.
Along with eliminating the moving tax deduction, the TCJA also reduced tax rates and doubled the standard deduction. If the TCJA sunsets, many taxpayers will see their federal income taxes go back up, an unsavory prospect for many politicians. A bill has been introduced in the U.S. House of Representatives to make the tax cuts permanent. Although no one knows what will ultimately happen, there’s some speculation that Congress will strike a deal to extend the tax cuts for most taxpayers. What will happen to the moving expense deduction is unknown.
Are Employer Reimbursements Taxable?
Yes, reimbursements by an organization to its employees for moving expenses are considered taxable earned income and must be reported as such. But if the business treats employee moving expenses as taxable wages for the employee, the company can still deduct these reimbursements as a business expense.
Are There State Tax Deductions?
A few states with income tax allow deductions for moving expenses, including New York and California. However, under the TCJA, taxpayers can deduct a maximum of $10,000 from the total of their state and local income taxes and their property taxes. The maximum is the same for both single taxpayers and those married filing jointly. For those married filing separately, the maximum is $5,000.
How to Make Up for the Lost Deduction
Since you can no longer deduct moving expenses from your federal taxes, your overall moving costs are higher.
As mentioned earlier, if your employer gave you money to cover moving costs, that is considered taxable income, so your tax bite might be larger. To make up for this, some employers are padding their moving reimbursements given to employees to compensate for the added tax.
Here are some ways to save money on your move:
- Do Some of It Yourself: Moving smaller or lighter items can save on costs of a professional moving company
- Get free boxes or reuse boxes
- Schedule your move during off-peak times for movers and compare quotes from multiple reputable movers
Should You Move to a State With No Income Tax?
Even though moving expenses aren’t tax-deductible for now, many people are attracted to the idea of moving to New Hampshire, Nevada, Florida, or one of the six other states with no state income tax. It can feel like a pay raise if you can get a job with a comparable salary in one of those states. Someone in California with a taxable income of $100,000 could save $6,600 per year in state tax by moving across the border to Nevada.
But you also have to remember that some states make up for their lack of state income tax with higher property or sales taxes. Property tax rates in Texas, for example, are the seventh-highest in the U.S. and more than twice as high as in California. Different states also have different tax rules regarding equity compensation. So, your stock options may have a higher tax than before you moved.
Also, consider living expenses in your new state. If you’ve been living in an apartment in New York and relying solely on taxis and public transportation, you may find you’ll need a car to get around in Wyoming or Nevada. The added car payments, insurance, and maintenance costs may nullify your savings from not paying income tax.
What if you keep your job in one state but work remotely in another state? You still have to be careful because a few states – Connecticut, Delaware, Massachusetts, Nebraska, New York, and Pennsylvania – tax income based on where the job is, not where the worker lives. Unless the employer requires moving out of state, the “convenience rule” says the worker still owes tax in the state where the job is located.
Another potential pitfall is the “183-day rule.” For example, the state of California says if you spent more than 183 days in the Golden State during the year, you’re considered a resident and owe state tax.
Any amount of time you spend in a state can count as a day. If you drove through for an hour and stopped for lunch, that counts as a day. If you flew in for a 60-minute meeting and then flew out, that also counts as a day. Keep a detailed record of your travels if you travel across state lines regularly.
If you lived in one state for half of the year and another state for the other half, you may owe tax on half of your yearly income to each state. So, you’ll have to know how much you earned while a resident of each state. Then you’ll have to file a part-year resident tax return in each state.
NOTE: The information contained in this post is not a substitute for tax or legal advice. State and federal laws change frequently, and the information in this post may not apply to your situation or reflect your state’s current laws or current federal law. Please consult with a qualified professional for current tax or legal advice.
Finding Help with Moving Professionals
We hope you found this blog post Guide to Moving Expense Deductions [Updated 2021] useful. Be sure to check out our post 5 Budget-Friendly Long-Distance Moving Tips for more great tips!
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