Relocation Tax Issues
Relocating for a new job?
In addition to sorting out all those things you stuffed in the back of your cupboards, wrapping up the crystal, and figuring out what to do with that yellow leather couch that you should have tossed the last time you moved, attempting to sort out the tax implications of your moving expenses is not the least of your worries.
For one, you need to figure out how to separate your personal expenditures from deductible moving expenses, and, if your employer is reimbursing all or a portion of your moving expenses, you need to figure out how much of the reimbursement is taxable. While we can t be there with markers and cardboard boxes, we can help you with some of the rules relating to work-related relocations.
Generally, the IRS defines moving expenses as deductible only if they are closely related both in time and place to when you started work at the new location.
Closely related in time generally means that all moving expenses you report must be incurred within one year after the first day you report to your new job. If you can prove that a move wasn t possible within the one-year time frame, the IRS may grant you an exception.
In addition, you must meet a second time test that looks at the amount of time you worked at your new job location after the move. If you are an employee, you must work full time for at least 39 weeks during the first 12 months after arriving in the new general area. If you are self-employed, you must work full time for a total of at least 78 weeks during the first 24 months after arriving at the new location. If you take the deduction, then don t meet the time requirement, you have to amend the return. Full-time work depends on what is usual for the type of work you perform.
To meet the closely related in place requirement, you basically have to prove two things:
- that your new home is closer to your new job than your old home was to your new job, and
- that your new job location is at least 50 miles farther from your old home than your previous job was.
Seems reasonable, doesn’t it?
When it comes to determining which moving expenses are deductible, the IRS looks at reasonable costs related to moving household goods and personal effects, as defined in the Internal Revenue Code and other regulations.
Some deductible moving expenses include:
- The cost of storing and insuring household goods within any period of 30 consecutive days during the move.
- The cost of traveling from the old home to the new home by the most direct route. (Don’t figure on deducting that antiquing junket to China.) You can use the actual traveling expense, or the standard mileage rate of 10 cents/mile. Household members don’t have to travel together or at the same time.
- Lodging expenses at the old and new locations, and while traveling from the old home to the new home
Some expenses that aren’t deductible include:
- House hunting expenses you incur BEFORE your move
- Temporary living expenses
- Expenses incurred in buying or selling a home
- Meal expenses
Under the Internal Revenue Code, gross income does not include any working condition fringe benefit classified as a qualified moving expense reimbursement.
Reimbursed expenses that are not otherwise deductible are included in your income.
As you can see, the tax rules for moving expenses can be as confusing as figuring out where to store that leather couch you just can t part with. If you need further information, contact a professional tax advisor.