People are always looking for ways to save on moving expenses since relocation is expensive. Moving tax deductibles was an excellent way for people to reduce their relocation expenses. However, the 2017 tax reforms disqualified many people from claiming moving tax deductions.
Currently, only military members subject to a permanent change of station or deployment orders can claim moving expenses deductions. However, you can claim deductibles if you moved in 2017 and fulfill all requirements. In this case, consult your accountant before filing your taxes for expert guidance.
If You Have Relocated in the Last 12 Months, Read This Before Filing Taxes
Unfortunately, your moving costs are not deductible if you moved in 2020 and are not a military member. Therefore, you cannot claim moving deductions on federal returns. However, you can alter a previous tax return if you moved in 2017 or earlier. In contrast, active-duty military members can claim moving tax deductibles for 2020 under the provided guidelines.
Few Things to Know About Qualifying
1. State by State
For people who have moved since the reforms came into effect, deductions can still apply to state taxes. Some states require separate legislation to accommodate new Federal rules. However, the guidelines vary between states. Thus, you should check your state's tax codes. Some states like New York passed legislation clarifying the areas on the Tax reform they were not adopting. In this case, you can itemize deductions of the state's income tax purposes even though they don't feature on your federal return.
2. Time and Distance
There are time and distance guidelines to meet when applying to deduct moving deductibles on your state return. The rules are:
- Your new workplace should be at least 50 miles farther away from your previous home than your old place of employment. For example, if your last house was 30 miles from your old job, the new place must be at least 80 miles away from the old home to qualify for moving deductions. However, the distance rule does not apply to active military members.
- You have to start the new job and have full-time employment for a minimum of 39 weeks in the first 12 months after arriving in the general location of your new job. If you are self-employed, you have to work full-time for 78 weeks during the first two years. However, the time rule is subject to exceptions such as disability or being laid off for reasons other than poor conduct.
3. Reasonable Expenses
Certain expenses tied to the move can be deducted in states that have not agreed to federal changes. These reasonable expenses include:
- Packing and shipping costs such as renting a truck, buying packing supplies, and hiring movers
- Moving expenses for relocating pets
- Storage costs for up to 30 days during transit
- Insurance for your items with a limit of 30 consecutive days
- Costs of lodging on the way to the new home
Keep in mind that you cannot claim deductions on the expenses of buying or selling, like mortgage penalties or costs of terminating your lease. Once you claim expenses, you cannot include them as business expenses as well.
4. Employer Reimbursed Moving
Some employers pay all or some of the moving expenses of relocating an employee and their family. In this case, you may have to include the reimbursement amount in your tax return. Ask your employer for information relating to the method of reimbursement used and give those details to your tax advisor. Fortunately, many employers offer relatively large allowances to cover the tax implications.
It is also advisable to check your state's guidelines on employee reimbursement for moving expenses. For example, New York state allows taxpayers moving within its boundaries to exclude employee reimbursements.
Moving expenses are still deductible for military members relocating on PCS orders. However, you cannot claim any expenses for which you received reimbursements or allowances. Although military moving allowances cover most expenses, there are often additional costs, particularly if you are moving by yourself.
Use the IRS form 3903 to list the deductible expenses, which include:
- Transporting pets
- Packing and moving household goods
- In-transit storage
- Airfare and lodging costs during the move
- Shipping your car
- Connecting and disconnecting utilizes
Expenses not liable for deductions include:
- Costs of purchasing or selling a house
- Vehicle registration costs
- Meals during transit
- Return trips to your old home
- Losses from canceling club memberships
- Costs of breaking or entering into leases
- Driver's license fees
6. If you Moved Before 2018
The Tax reform law took effect at the start of 2018 and will remain in place up to 2025. However, moving deductions still apply to non-military members who moved in 2017 or earlier. Keep in mind that the IRS gives a three-year window for taxpayers to amend their returns.
7. What About State Taxes?
Some states automatically adopt new federal laws, while others require their own legislation. States like New York, Arkansas, and California still allow moving deductions, although provisions vary.
8. Do I Have to Claim Relocation Allowances from My Employer?
Under the Tax reform law, you must declare relocation bonuses from your employer as income as they are subject to tax. But you don't have to pay tax on reimbursements made in 2018 for a 2017 move.
9. The Moving Service
If you moved in 2017 or earlier, you could claim deductions for the costs of hiring moving companies. Moreover, the costs of hauling a trailer and buying supplies are deductible.
Storage costs for the period between leaving your old house and moving into a new one are also deductible. However, there is a limit of 30 days.
Certain moving expenses linked to your travel for both you and your family members may also be deducted. These expenses include costs of road tolls, parking fees, and airfare.
12. Closely Related to the Start of Work
In general, you must incur deductible expenses within one year from the time you reported to your new job. However, you can provide the circumstances that prevented the move during this period to get an exception.
13. The 50-Mile Distance Test
The new work location had to be at least 50 miles farther away from the last house than your old workplace was.
14. The Time Test
You will have to report to your new station and work full time for a minimum of 39 weeks for the first 12 months after relocating. However, there are exceptions if you report to your new company months before the rest of your family joins you due to special circumstances.
Find a Moving Company Who Will Guide You for Taxation
It is prudent to seek a moving company that can guide you on taxation. A reputable company provides dated receipts for taxation purposes and lets you know how the moving expenses impact your income taxes. However, you should still consult a tax professional to ensure full compliance with tax laws.
Writing off expenses has been one way to cut moving costs for many people. However, the 2017 Tax Reform Law did away with the moving expense deduction, except for active military members. However, you should check your state's regulations for exceptions. Additionally, contact a reputable moving company like Sunshine Movers to understand how tax laws affect your move.