Yes, you may deduct moving expenses from your Federal Income Taxes.
Whether you are self-employed or work for somebody else, you may deduct the costs associated with moving to a new home because you have changed your principal workplace. Members of the armed forces also may deduct reasonable relocation expenses associated with a change of duty station. Veterans also may deduct moving expenses associated with separation from service, as long as the move happens within one year of retirement.
If you move outside the United States, you may deduct the full cost of packing, crating, storing, insuring, and moving all of your personal property and household effects. If moving outside the United States for an extended period but keeping most of your personal belongings in storage, you may deduct the cost of moving and storing your possessions, and you may deduct the cost of moving your property into a new residence upon your return from your international assignment.
The calculations and paperwork for deducting your moving expenses do not require a degree in accounting. The best tax preparation software guides you step-by-step through the process, checking your deductions’ legitimacy and making sure you get all the deductions to which you are entitled. The most popular tax preparation books also guide you through the process. IRS publications, naturally, must explain the rules and calculations in strict legal language. Popular commercial publications do not face the same constraint and, therefore, are much easier to understand and follow.
You cannot deduct your expenses…
If your employer reimburses your moving expenses as a separate item on your paycheck. That kind of reimbursement qualifies as non-taxable income; no tax, no deduction. If reimbursement does not, however, cover all expenses the government allows, you may deduct your-out-pocket expenditures according to the IRS rules.
If you fail the Time Test. The IRS Time Test determines whether the relocation was permanent or temporary. Permanent relocation qualifies for tax deductions; temporary relocations may qualify under other provisions of the tax code, but they do no qualify as moving expenses.
In order to pass the Time Test, you must work full-time at your new workplace or in its general vicinity for at least thirty-nine weeks out of the twelve months immediately after you move. Just as importantly, in order for the moving expenses to remain qualified in subsequent tax years, you must continue working full time at the new workplace for at least 78 weeks during the first twenty-four months after your move.
If you meet the criterion in the first tax year but ultimately fail the test in the second twelve-month period after the move, you must file an amended tax return. If your employment circumstances require a second move, seek assistance from a CPA or qualified tax professional.
The government grants military personnel exemption from the time test.
If you fail the Distance Test. The IRS Distance Test determines whether your relocation genuinely originates from a reasonable change or employment circumstances or your convenience. Regardless of your family’s overall economic conditions, if you move for the sake of reducing your commute, you cannot deduct your moving expenses.
To satisfy the Distance Test’s requirements, you must demonstrate that your new principal workplace is at least fifty miles further from your old home than your old workplace was. Under ordinary circumstances, the Distance Test poses no problem, because the company transfers you to a new region or you move your own business to a more profitable place.
Three exceptional circumstances may, however, complicate your situation:
In one scenario, your employer transfers you from one office to another, prompting you to move the family; but you move within the same geographic area, and you move less than fifty miles from your old workplace. In another scenario, you leave your old employer, accepting a new job in the same general area as your old workplace. Although you move for sound practical reasons, you move less than fifty miles from your old employer, falling short of the qualifying standard. In the third scenario, you move from one state to another, naturally assuming that interstate relocation satisfies the test, but you still fail to satisfy the fifty-mile requirement. In the greater New York and Washington, D.C. metropolitan areas, this situation is not uncommon.
IRS rules exempt active duty and recently retired military personnel from the Distance Test.
Legitimate Deductions
In general, you may deduct all the reasonable costs associated with relocating your family for the sake of your new employment. The IRS employs a liberal definition of “reasonable,” so that you may deduct travel costs, including lodging for you and your family. If you use your own vehicle for the move to your new home, you may deduct mileage at 24¢ per mile. You also may deduct the cost of storing your household possessions for thirty days before and thirty days after your official relocation date.
You and your family need not travel in the same vehicle or at the same time. You may, however, deduct the costs of only one trip. Job-search expenses are deductible under other rules; you cannot deduct house-hunting trips.