Other than the Election 2016, the biggest concern of people in the US right now is TAX SEASON!!!! The April 15 deadline to file taxes is approaching fast and we thought this would be a good time to help you determine whether you can claim your moving expenses as a deduction on your tax return.
Moving because of housing was at the top of the list, family related moves came second, while the third reason for moving was work-related. Many Americans moved in search for a new job, transfer with their current job, to take a new job and to get closer to their current job to reduce commute time.
If you’re among those who made a work-related move, federal tax laws permit you to deduct your moving expenses from your taxes and get a tax return if you’re eligible to do so.
Is Your Move Eligible for a Tax Deduction?
The Internal Revenue Service (IRS) allows taxpayers to deduct eligible moving expenses from the taxable income they report on Form 1040. If you’ve moved to a new state or city because of work in the last 12 months, you may be eligible to claim the amount you’ve spent on your moving expenses.
This tax deduction has no limits, so you can claim as many qualified moving costs as possible if you meet the eligibility requirements. This moving costs can include costs of packing your household goods, hiring a moving company, truck rental, loading and unloading the truck, car shipping etc.
It is worth mentioning that while the moving costs you pay yourself are deductible, the expenses that your employer reimburses you for are not qualified for this deduction.
The IRS Publication Form 521 clearly specifies the eligibility requirements for moving expenses tax deduction. Here are the key requirements:
Time Test Eligibility
In order to be eligible for moving expenses tax deduction, the time you moved to a new location must be closely related to the start of your new job.
To meet this requirement, you’re expected to start your new job and work full-time for a minimum of 39 weeks within the first 12 months starting from the first day you arrived your new home.
You can still meet this eligibility standard even if the 39 weeks are not consecutive and when the work weeks are for several employers. Thankfully, the IRS does not indicate the number of hours or days you must work within the specified weeks to be a full-time employee. Rather, it concedes to your industry’s usually-accepted standard.
Distance Test Eligibility
The distance test eligibility considers the distance between your old home and your new work place. In order to claim your moving cost, your new work place must be at least 50 miles farther away from your old home and your old work place.
As an example, if you were living in a home that was 15 miles away from your old job, you’ll have to take a new job at a new company or for the same company that is at least 65 miles away from your old home to be eligible for the tax deduction.
When assessing whether you qualify for the distance test, the IRS requires you to use the shortest commutable routes between your new home and new work place. The moving cost you incur for relocation within the same neighborhood or town does not qualify as a deduction on your federal income tax return.
Deductible Moving Expenses
All deductible moving expenses must be “reasonable” and related to your move. This reasonable moving expenses can include the cost of renting a self storage unit for 30 days, the cost of rental trucks, the cost of hiring a moving company and the cost of buying moving boxes.
If you have to drive to your new home in a personal car, you can include the cost of highway tolls, gasoline, oil, and parking fees. If you made a long distance move that involves lodging in a hotel for a night or more, you can include that cost on your moving expenses. Also, you can deduct the cost of train and airline tickets if you have to travel to your new location either alone or with your family members.
The IRS earmarks a standard mileage rate for calculating traveling expenses. But you can decide to use your actual transportation expenses and deduct those accordingly.
How To Claim Your Deductible Moving Expenses?
You can claim your moving expenses deductions before knowing whether you’re eligible or not. Since the time test eligibility period is 12 months, most taxpayers cannot meet the time test requirements until the following tax year. Nonetheless, the IRS permits you to claim deduction on your moving expenses in the year you relocated.
To claim your moving expense deduction, you must report all your moving expenses on IRS Form 3903 (pdf) and attach the document to your personal tax return that covers the year you relocated.
But if you do not satisfy all the requirements at the end of the 12-month time test, you’re required by law to reverse the deductions. There are two ways to initiate the deduction reversal. Firstly, you can include the original deduction amount in “other income” on your next tax return. Secondly, you can amend the original return and calculate your tax excluding the moving expense deduction.
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