KIM & ASSOCIATES PA·WEDNESDAY, FEBRUARY 24, 2016
The Internal Revenue Code [ §217] allows individuals to deduct reasonable moving expenses paid or incurred during the taxable year in connection with the commencement of work at a new principal place of work. Moving expenses incurred that are not paid or reimbursed by your employer are allowable as a deduction in computing adjusted gross income and are not subject to the 2% floor limitation on itemized deductions. You must be able to substantiate all deducted expenses, so be certain to keep adequate records, receipts, bills, and canceled checks. The specific requirements that you must satisfy to qualify for this deduction are discussed below.
Closely related to start of work
Deductible moving expenses must be closely related in time and place to the commencement of work at a new location. The requirement that the move be closely related in time is satisfied if the expenses deducted are incurred within one year of the date you report to the new job. Under limited circumstances, deductions are allowed for expenses incurred beyond the first year. The requirement that the move be closely related in place is satisfied if the distance from your new home to your new job is less than the distance from your former (i.e., current) home to the new job. Please note, however, that even if these requirements are met, you must still satisfy the distance and duration requirements discussed below.
In order for moving expenses to be deductible, your new job must be at least 50 miles farther from your old residence than was your former job. If your new job will require that you travel daily (e.g. to meet with customers in an assigned region) then the “job location” that applies to this requirement is your main job location, e.g., the place where you report for work, where you base your work, or where you spend most of your working time.
Duration of employment
The moving expense deduction is also conditioned upon you remaining a full-time employee for at least 39 weeks during the 12-month period right after you move. If you are employed in a seasonal business, note that these do not have to be 39 consecutive weeks, and also that employees in a seasonal trade or business are considered to be working full-time if the off-season is less than six months and the employee works full-time before and after the off-season.
If you and your spouse file a joint return and are both employed, if both of you change jobs, either of you can satisfy the full-time work test, but you cannot add the weeks your spouse works to those you work.
However, the employment requirements for the self-employed are slightly different. You must perform services on a full-time basis for at least 78 weeks during the 24-month period following arrival in your new location, 39 of which must be in the first 12-month period.
You may generally claim the moving expense deduction in the year in which the expenses are incurred, even if you have not satisfied the duration requirement by the deadline for filing your return, as long as there is time in the 12-month period to satisfy the requirement. For example, assume you begin your new employment in December 2016 and pay your moving expenses in 2016. On April 17, 2017, when you file your income tax return for 2016, it will not be necessary for you to have met the 39-week requirement. However, you may elect to claim the 2016 moving expenses on your 2016 income tax return because there is still sufficient time remaining before December 2017 to satisfy this condition. Alternatively, if you incurred the expenses in 2016, but decided to claim the deduction in 2017 after satisfying the duration test, you must file an amended return for 2016 to take the deduction. You must claim the deduction in the year the expenses are paid or incurred, so you would not be able to claim them on your return for 2017. If your employer reimburses your expenses in a later year, however, you may wait until that year to claim the deduction.
Moving Expenses Defined
Moving expenses paid or incurred are limited in scope. Moving expenses means only the reasonable expenses of (1) moving household goods and personal effects from your former residence to the new residence, and (2) traveling (including lodging, but not meals) from the former residence to the new place of residence. You are allowed to take into account another person’s (e.g., your spouse’s) moving expenses when that person has both the former residence and the new residence as their principal place of abode and is a member of your household.
Specific types of deductible expenses for moving “household goods and personal effects” include: packing and crating charges; the costs of connecting or disconnecting utilities; and the in-transit storage charges (within any consecutive 30-day period after your things are moved from your former home and before they are delivered to your new home), and insurance for the household goods and personal effects you or a member of your household own. Also included are costs associated with moving your car for use at the new home, and the reasonable costs of moving your pets. You may also deduct the cost of one trip for you and each of the members of your household from your former home to your new home, including travel and lodging. You do not need to all travel together or at the same time. If you use your automobile to travel to your new home, you may deduct either the actual out-of-pocket expenses for which you have adequate records, or you may take the standard mileage deduction if you can prove the mileage traveled.
Moving expenses that are not deductible include the cost of: house-hunting trips, living expenses after you arrive at the new location, trips to sell property, storage other than in-transit storage, mortgage penalties, loss on the sale of your home, etc. Also not allowed are pre-departure expenses at the former residence, any allowance for depreciation, or expenses of trips back to the former residence because family members are still there.
If you have any questions on the subject, give us a call and schedule a meeting with one of our CPAs to discuss your particular situation.