Here’s an all-too familiar scenario tax experts say they see often: Someone who moves to a brand new house for work and thinks the switch qualifies him to write-off his moving expenses, only to find out he didn’t move far enough.
Even if our fictitious character above met the federal tax collector’s two other key rules – the move was closely related to the start of his new job and he’d worked full-time at the new place of employment for at least 39 weeks in the first 12-month period after changing addresses – he couldn’t deduct his moving expenses because he flunked the rather tricky distance test.
That test requires your new main job location to be at least 50 miles further from your old home than your old place was from where you previously worked.
In other words, the change of work venue can’t be just 50 miles from your old residence. Rather, it must be 50 miles plus the distance from your old house to your previous job. So, if your old house was three miles from work, your new job must be at least 53 miles from your old house.
The Internal Revenue Service doesn’t keep statistics on whether or not taxpayers are having problems with its moving expenses rules and IRS spokesman Clay Sanford in Dallas says he doesn’t even want to speculate about how many folks get tripped up. But it is probably safe to say that the mileage test alone snags a lot of people.
If you meet the three tests – distance, time and the start of work at your new job – you can write off your moving expenses, including transportation and lodging, but not the cost of meals
In a work-related move, you also can deduct the cost of packing, crating and shipping your household goods. And you can include the cost of storing and insuring your goods for up to 30 consecutive days, from the time they are picked up to the time they are delivered.
If there is any cost incurred in disconnecting your utilities at the old place and connecting them at the new place, those, too, are deductible when the move is work related.
But you can’t write-off any part of the purchase price of your new home as moving expenses, nor can you claim any of the costs associated with selling your old place.
By the way, the ability to deduct moving expenses isn’t limited to people who already own a home. If you are a renter who buys a house and meets the three tests described above, you also are allowed to claim your expenses. But you can’t include the cost of breaking your lease.
If your employer pays for the cost of the move, either entirely or partly, you need to include that payment as income in the year you receive it. If the reimbursement amount is more than you actually spent, you may have a gain.
Finally, if you are self-employed, the time test doubles. That is, you must work full-time for at least 78 weeks during the first two years at your new job site. Even if your tax return is due before you meet the time test, you can still deduct your moving expenses as long as you expect to meet the rule.
Obviously, since the rules covering moving expenses are somewhat complicated, IRS spokesman Sanford stresses that it is to your benefit to keep good records.
“People really do need to keep good records,” he says. “It’s very important when you are going to deduct anything. One of the main reasons, of course, is that you need to have them if you get audited. But it’s just as important to remind yourself of what you spent months ago, so you don’t forget something you can deduct.”
You can download IRS Publications 521 to find out more about its moving expense rules. And don’t forget to change your address with the tax collector as well as your post office.