Save Money Deducting Job Relocation Expenses
New Employees Relocating to Another City Can Claim Tax Deductions
Relocating to a new city for the job opportunity of a lifetime is exciting, yet stressful. Mountains of boxes, home sales, moving vans, new home purchases, getting used to the new town – so much to do, and so many sights to see. When the flurry of activity slows down, it doesn’t take long for the tax man to come knocking on the door. Thankfully, a range of moving deductions await the weary worker.
Who Can Deduct Moving Expenses?
A person can claim relocation expenses only after three main criteria are met: the move closely related in time and place, time test, and distance test.
- Relocation closely related in time and place. The move must have taken place within one year from the start date of the new job (closely related in time). Furthermore, closely related in place means the distance from new home to the new job location is no greater than the distance from the old home to the new place of work.
- Time test. The new employee must work full time for at least 39 weeks during the first year after arriving in the new position. The person does not necessarily have to work for the same employer, and does not have to work the full 39 weeks consecutively. However, he or she does have to work full time within the same commuting area for all 39 weeks.
- Distance test. This test follows the 50-Mile Rule: the new work location is at least 50 miles further from the former home than the old job location was. For example, the old employer was 5 miles from the former home, but the new employer is 55 miles from the (old) home. Of course, if moving to another state altogether the deduction is a given based on the distance test criteria.
What Moving Expenses Can be Deducted?
If the interview process ends up in a job offer in a new U.S. city, many relocation expenses can be deducted. According to IRS Form 521, eligible coverages include lodging and transportation, but meals cannot be claimed. Furthermore, additional costs incurred by side-trips and sightseeing along the way are not covered; only those directly related to the move on a Point A to Point B basis can be claimed. Other moving-related deductions include:
- packing and transporting household goods to new home
- shipping goods from a place other than former home (e.g., from a storage facility)
- storage fees
- fees for disconnecting and connecting utilities
- travel expenses (e.g., mileage, tolls, lodging, parking fees, airfare – excludes meals)
- shipping car and/or pets to new home
What Relocation Expenses Cannot be Claimed?
Uncle Sam gleefully covers the fundamental cost of moving: packing, shipping, travel, storage, etc. However, there are some expenses the happy taxman won’t cover:
- license plates and registration for car(s)
- any part of the sale of the former home
- any part of the purchase of the new home
- any part of leasing a home or apartment
- security deposits
- real estate taxes
- house hunting expenditures
How to File
In order to claim relocation fees, the person must first complete IRS Form 3903, “Moving Expenses.” Once the worksheet is completed, enter the final result on Form 1040, Line 26. Form 3903 must be attached to the tax return when filing.
The Federal tax deduction for moving expenses should not be overlooked. Those who relocate to a new city for a job and who meet the time, distance, and time and place criteria set forth by the IRS can expect a hefty refund come tax time.
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