Are Moving Expenses Tax Deductible
There was a time when people used to save their moving company receipts and bills to claim deductions on moving expenses. Now that you reflect back on it, those were the good days. Those deductions proved as relief from all the dollars spent on moving. Anyone who has moved homes will be shaking their heads right now because moving is a pricey affair.
But allow us to burst the bubble, moving expenses are no longer tax-deductible, thanks to the federal government for its Tax Cuts and Jobs Act (TCJA) passed in 2017. In simple terms, you can claim no tax deductions if you are planning a move in 2021. However, there are a few exceptions, and if you fall in those categories, this article will definitely help you:
Your Moving Expenses Are Deductible Only If:
You Are in The Military
The tax changes did not affect the ones in active military duty. You can have those moving expenses deducted from your federal returns if you serve the armed forces. But there’s a catch: this deduction is possible only if you moved because of a military order or a permanent change of station. The unreimbursed expenses can also be deducted for your spouse or any dependents.
You Moved Before 2018
In case you moved anytime before December 31, 2017, you can claim that deduction. But nothing for moves post that date. Many people claim their tax benefits in the same financial year. Only if you haven’t, will you be eligible for deductions, but only till three years after you filed that return.
You Live In A State That Allows Deductions
Though most state governments follow the footsteps of the federal government, there are some US states that update their income tax rules by legislation. As of July 2019, only 7 states namely Arkansas, California, Hawaii, Massachusetts, New Jersey, New York, and Pennsylvania allowed moving tax deductions. Even amongst these states, rules for deductions can vary, take for instance New York and California, which exclude qualified employer moving expense deductions. So it’s always a good idea to ring up your accountant for better clarification on your state’s income tax return policies.
If You Qualify For Moving Tax Deduction
If you do fall in any of the above brackets, you can actually claim your rightful reimbursement. But hold on, there is a lot more to know, like the rules to qualify for moving expense deduction.
Costs That Are Deductible
The costs that you claim deduction on should be reasonable expenses. No one is reimbursing the money spent on those takeaways you ate while moving. Only those expenses incurred on move are deductible like shipping, truck rental, storage units, or moving supplies. There is good news for students, if you are moving furniture or heavy appliances from your parent’s home, those costs too will be covered!
Everything, right from hiring a professional moving company to shipping your pets will be considered for deduction. Car or airfare expenses that you incurred while traveling to your new home will be considered. This includes gas, toll, and parking. But don’t expect maintenance or general repairs to be included. Airfare is reimbursed but only if you traveled a direct route and did not stray away for a vacation in the middle.
Factors Like Distance And Time
If you have moved for the reason of work, there are a ton of factors that come into play. Like the distance of your new workplace from your new home. The commute from your old home to your new job was 50 miles longer than the commute from your old home to your old job. Let us make it simple, suppose you commuted 10 miles from your precious home to your previous job. Now, your new workplace is 100 miles away from your previous home, which is obviously more than 50 miles. Do the math and you’ll know you are traveling 90 miles more from your old home to reach your new workplace. This means you are eligible for a deduction.
You should relocate to your new home within 12 months before or after you start your new job. To top that, you are required to work for your new employer for at least 39 weeks after the move. The same goes if you are self-employed, but only if you are working full time in self-employment. But all this doesn’t apply to you if you work in the military.
Active duty military people don’t have to meet the distance and time requirements towards deductions. Any move between duty stations or move due to a permanent change of station is considered for reimbursement. Even the ones who are retiring and moving from a final duty station to retirement can claim their deductions. Moving expenses incurred like traveling expenses, hiring movers, and temporary lodging during the move are up for deductions on tax returns. When it comes to expenses on meals, it’s the same as for the civilians, no reimbursement on those!
Recording The Deduction
Once you are sure you can claim a deduction, check out IRS Form 3903. You can record your deductions on this form. Simply go to line 26 of the 2017 Form 1040 and enter the result. You can even avail such a deduction if you itemize your deductions or go for a standard deduction. Go ahead if you want to consult your accountant before filing this form or delegate the work entirely to the accountant.
For People In Military
Military personnel too should report their moving expenses in Form 3903. The costs incurred for shipping and storing your personal belongings go to line 1 of Form 3903. The expenses of traveling like your car gas cost or airfare, plus the lodging expenses go to line 2. For tax deductions for years after 2018, Form 1040 Schedule 1 is the place to record your deductions.
Tax Deduction On Moving A Business
There are tax deductions on moving expenses for business owners too. If you are a business owner and moving your business to a new place, you can claim reimbursement on expenses incurred to move inventory and business equipment from one location to another. Moreover, the cost of renting or buying a new office for your business too is reimbursable under this. In case you are moving for the purpose of setting up your business in a new location, your personal expenses relating directly to the business could also be deductible. It’s always better to run it through your accountant though, to benefit the most from this.
How To Save If You Don’t Qualify For Moving Tax Deduction
In case you don’t qualify for any tax deduction and your employer won’t reimburse you, turn to conscious steps into saving money. From hunting for free packing supplies to eliminating professional movers, here are ways to reduce expenses if you aren’t eligible for tax deduction:
- Avoid relocating between May and August as it is the peak moving time. Moving during the off season is going to bring down your moving expenses. Plan to move between September and April, choose a day that is in the middle of the month and middle of the week. There is lesser demand during the middle of the month, so plan your move accordingly.
- Research well and get quotes from a minimum of 3 moving companies. This way, you can plan your budget and account for which moving services you actually need. You can even go for a DIY move if you are moving within the same town/city. Going for a truck rental is going to be more cost-effective than hiring a moving company. Take help from friends or neighbors and load things into the pickup truck. But leave moving heavier appliances and furniture to the professionals.
- Pack everything by yourself and go for free packing material. Shipping warehouses, department stores, and storage spaces of commercial complexes are often overflowing with packing supplies. They sure can spare some boxes and bubble wrap if you approach them. If you don’t want to step out of the house, look for packing supplies on Craigslist, Freecycle, or U-Haul Box Exchange. You can even turn to Facebook; many communities are openly ready to help.
- Drive your car rather than hopping on a plane and shipping the car to your new home. If you think you can cover the difference, this is a great way to save airfare and car shipping charges. Place your delicate belongings and fragile items in the car. You save on shipping charges of those items this way.
The number of expenses that are involved in relocation can be daunting. Tax deductions on moving expenses act as a huge benefit. If you aren’t in the military, do your research and find out if your state has any deductions. Even after this, if you cannot get a deduction, try adopting the tips we stated above to cut on moving expenses. Budgeting for your move is the best decision you can make.
Can I Still Deduct Moving Expenses from 2018 on My Federal Tax Return?
If you haven’t claimed your benefits on moving expenses from a move before 2018, revisit your return. According to the IRS, you can amend a return for three years after filing it or a period of two years after the date you paid your taxes (whichever is the later among the two.) But the three-year period is running up soon, so hurry to amend that return.
Can I Get A Tax Deduction On Moving If My Employer Already Reimbursed Them?
There are companies that reimburse their employees for their moving expenses. So if you moved for work, and you have already been reimbursed by your employer, then that tax deduction is not for you. Rather, the moving reimbursement paid by your employer is now included in your gross income. They end up increasing your tax bill since they were included in gross income.
Which Moving Expenses Are Not Deductible?
We already shed light on zero reimbursements on meals, but there are other things that are not deductible. The trips you took to research for new homes, purchasing your new home, signing the new rental lease, remodeling upgrades to your new home, and the cost of returning to your previous home after you have already moved are all non-deductible expenses you will incur. Remember this right from the start so you keep a track of your expenses without being under any illusion.