Key rules for job-related expenses
Are you planning a move in the near future? Be aware of special tax rules for deducting moving expenses on your personal tax return. In some cases, moving expenses are fully or partially deductible, while other times they are not.
Background: You may deduct moving expenses only if you switch jobs or get a new position. In other words, you cannot deduct expenses simply because you decided to get a bigger place or relocate to a different area. Assuming that the move is “job related,” you still must pass this two-part test to qualify for deductions.
Part #1: The new job location must be at least 50 miles farther from your old home than your previous job location. For this purpose, the most commonly traveled route generally measures the distance between two points.
For example, say that Ms. Jones works for High-Tech Company. High-Tech transfers Jones from its Northtown office to a similar position in Southtown. Previously, Jones lived five miles from her job in Northtown. But her new job location in Southtown is 45 miles from her old house. Because the new job is only 40 miles farther from her old home than the old job was, Jones cannot deduct her moving expenses.
Part #2: If you are an employee, you must work full time for at least 39 weeks during the first 12 months after you arrive in the general area of the new job. Note: You do not have to work for the same employer, as long as the 39-week test is satisfied. If you are self-employed, you must work full time for (1) at least 39 weeks during the first 12 months and (2) a total of at least 78 weeks during the first 24 months after you arrive in the general area.
In general, you may deduct the “direct” expenses of moving to a new home. These include the cost of transferring household goods and personal effects (e.g., furniture, appliances and car) and your traveling expenses during the move. If you travel by car, you can keep track of the exact amount of your expenses or deduct a flat rate (plus related parking fees and tolls). The flat rate for 2016 returns is 19 cents per mile.
Note, however, that deductions are not allowed for “indirect” moving expenses, including:
- pre-move house-hunting trips;
- temporary living expenses; and
- attorney’s fees and real estate commissions related to the move.
Conclusion: Moving expenses are deductible before your adjusted gross income (AGI) is computed. Therefore, they are not subject to the “Pease rule” that reduces itemized deductions for upper-income taxpayers. In addition, deductions to arrive at AGI may further lower your overall tax bill. Consult a tax professional for more details.