There is no doubt relocating from one destination to another usually brings with it a whole truckload of stress and anxiety. All that planning can be really daunting, not to mention the cash that flows out of your bank account for the whole relocation process. On top of that, you may be wondering about the moving expense tax deduction.
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 helps you with information about tax deductions related to your move.
Moving Expenses Are No Longer Deductible In Most Cases
First, the bad news. With few exceptions, the 2017 Tax Cuts and Jobs Act (TCJA) eliminated the moving expense federal tax deduction for most taxpayers starting in 2018. One exception is if you are active-duty military and moved pursuant to a permanent change of station. (A spouse or dependent child of a military member who is imprisoned, deceased, or deserted may also qualify to deduct moving expenses.)
Another exception is if you moved as part of the process of starting a new business as a self-employed business owner (more on that later).
If you moved before December 31, 2017, you can still deduct some moving expenses. If you didn’t claim the deduction, it might be worth amending your return. You generally have up to three years to amend a return from the time you filed it, or two years after you last paid tax for that return, whichever is later.
So time is running out to amend a return you filed in 2018, if you moved in 2017. You use IRS Form 1040-X to file an amended return.
If you moved in 2018 or later, the IRS can help you determine whether your expenses are deductible [spoiler alert: unless you’re active-duty military and moved because of a permanent change of station, the answer is probably not].
What Expenses Are Deductible?
If you moved in 2017 to start a new job or to find work, or you’re active-duty military, your expenses may be deductible. But there are a few things you need to know:
Not All Moving Costs are Deductible
If you moved within the U.S., deductible expenses are those directly related to the move. This includes:
- costs of packing and moving household and personal property
- the cost of shipping your vehicle
- disconnecting utilities at your old location
- travel costs to your new location including temporary lodging while en route
- rental truck and supplies
- parking costs
- storage costs for up to 30 days until they are delivered to your new home
Some expenses that aren’t deductible are:
- meals you ate on the way to your new location
- side trips you took while en route to your new location
- trips you took before your move to look for a new home
- costs of purchasing or remodeling your new home, signing a lease, or registering your vehicle in a new state
- costs of returning to your old location for any reason after you move
Requirements for Deducting Moving Expenses
Because the IRS has to make things complicated, there are additional requirements you must meet to deduct your moving expenses. These are a distance test, a time test, and a length-of-work test.
Distance Test: Your new work location must be at least 50 miles farther from your old home than your previous work location was. For example, if your old workplace was 10 miles from your old home, and your new workplace is 100 miles from your old home, then you meet the distance test, because 100 miles is at least 50 miles farther than your previous 10-mile commute.
Time Test: You must relocate to your new home within a 12-month period either before or after the time you start working at your new workplace.
Length-of-Work Test: You must work full time for an employer for at least 39 weeks in the year following your move. The weeks, however, do not need to be consecutive and it doesn’t matter if you work for different employers. If you are self-employed, you need to work full-time in self-employment for at least 39 weeks during the first year after your move and at least 78 weeks during the 24-month period after your relocation.
If you’re active-duty military and moved because of a permanent change of station, or moved from a final duty station to a retirement location, you’re exempt from the length-of-work and distance tests.
How to Claim the Deduction
If you’re amending your 2017 return to claim deductions, you record your expenses on IRS Form 3903 and enter the result on line 26 of the 2017 Form 1040. You can claim this deduction even if you claim the standard deduction or itemize your deductions.
Military members claiming moving expense deductions also use Form 3903. For tax year 2018 and beyond, the deduction is entered on the new Form 1040 Schedule 1, which has been updated each year. For 2020 the Schedule 1 is here.
Moving a Business
What if you own a business, and you and your business both move? Although your personal moving expenses are no longer deductible, your business moving costs are deductible as business expenses. This includes costs of moving business equipment, supplies, and inventory from one location to another. It also includes costs for renting or buying a new location.
If you’re self-employed and moving as part of the process of starting a new business, your personal moving expenses may also be deductible. This is the other exception mentioned earlier. To be considered self-employed, you can’t be the owner of a corporation, work part-time, or be a part-time student. Additionally, you can only deduct personal moving expenses that are directly related to a business move. You must also meet the distance test and length-of-work test.
State Tax Deductions
For states that have income tax, your moving expenses may be deductible on your state taxes. Check with your individual state, as some automatically follow federal law in this regard and others don’t. There are a handful of states including New York, Massachusetts, and California, that did not automatically conform to the federal law.
How to Make Up For the Lost Deduction
The fact that you can no longer deduct moving expenses increases your moving costs, because the costs don’t lower your tax bill. In fact, 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.
Currently, the moving expense deduction is only eliminated until January 1, 2026, but Congress is seriously considering making the elimination permanent. 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
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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