Which moving expenses are tax deductible?
Moving to another home can be quite expensive, especially in the case of a long-distance move. It is no wonder, then, that many people who have to move due to no failure on their part wonder whether there are any tax deductible moving expenses that they can take advantage of. The bad news is that unless you moved prior to the tax year 2018 or are an active member of the military, you will most likely not be able to deduct the moving expenses you incur due to hiring one of the best moving companies in your area. The good news is that some states still offer these deductions under very specific circumstances. In this article, we will go over the current situation of tax-deductible moving expenses, explain which expenses are inherently deductible, and go over the requirements and actual filing of the tax return.
Are moving expenses deductible?
There is no simple answer to this question. On the one hand, yes, moving expenses are tax deductible, but only under certain circumstances. This was not the case prior to 2017’s Tax Cuts and Jobs Act, where all taxpayers could deduct their moving expenses if they had to relocate due to their job. These days, tax-deductible moving expenses are still a thing, but they are much more limited. Only a select few taxpayers will be able to take advantage of them. And, of course, military personnel who have to relocate due to a permanent change of station or another military order can still deduct moving expenses from their federal tax return.
As for who else can benefit from deductible moving expenses, it all depends on the circumstance and the state. If you believe that you might be able to qualify for these deductions, the best thing you can do is to read up on tax reduction services reviews and find a trustworthy tax professional to help you with them. But, on average, if you are not part of the military or have moved prior to the tax year 2018, you will not be able to claim deductions for moving expenses.
Which moving expenses are tax deductible
If you find out that moving expenses are tax deductible in your case, the next step is to figure out which expenses are deductible and which are not. There are a few rules that govern tax deductible moving expenses, but the most notable one is that moving expenses need to be both reasonable and necessary to your move. Some of the reasonable moving expenses may include:
- Rental truck cost
- Packing materials
- Short term storage
- Moving insurance
- Parking fees
Basically, you get to deduct all the expenses that your move necessitates. In case of long-distance relocations, the IRS also allows you to deduct the cost of lodging. One thing that you cannot deduct, however, is the cost of your meals. If you plan on maximizing your deductions, you may want to go the DIY route for your relocation. For the most part, you will be able to deduct everything you need for a successful DIY move. Of course, anything that is merely a convenience is not deductible. But if the cost is necessary, you can always deduct it.
Storage expenses and travel expenses
For storage expenses, you can only include the cost of storing and insuring your possessions for a period of 30 consecutive days after they leave your old home. Furthermore, once your items are delivered to your new home, you can no longer deduct storage expenses. As for travel expenses, they do not only include expenses for yourself but the members of your household as well. You can deduct travel expenses for one trip per person, and your family does not need to travel together to be eligible for these deductions.
Lastly, tax deductible moving expenses only apply to your household goods and your personal effects. While household goods are pretty much self-explanatory, personal effects may mean a lot of things.
The term “personal effects”, as it pertains to moving expenses, includes any movable personal property that you might have, such as automobiles, livestock, furniture, and money. Basically, anything that you own and that is not connected to your home is most likely going to qualify for personal effects. As per the IRS rules, you are entitled to deduct any moving expenses that are necessary for transporting your personal effects to your new home. However, there are situations in which you might not be able to do so. Since these situations are highly specific, we doubt that you will ever encounter them. But if you do, the best answer is to contact a tax professional immediately. They will be able to provide you with the best course of action and allow you to maximize your deductions.
Tax deductible moving expenses 101
There are two situations in which you can deduct your moving expenses. Well, there are many more than that, of course, but other situations are highly specific. The first situation is if you have moved prior to 2018 and haven’t claimed the moving expense tax deduction. The second situation is if you are an active-duty member of the military and your move resulted from a permanent change of station.
In either situation, you will need to fill out Form 3903 alongside your Form 1040. Other than that, you will need to satisfy two criteria if you want your moving expenses to be considered tax-deductible – The time test and the distance test.
The time test is there to determine whether your relocation is closely related to the start of your new employment. In order for your moving expenses to qualify for deductions, you will need to work in your new community for at least 39 weeks in the first twelve months after the relocation. To maximize the time you have to satisfy the time test, it is smart to employ as many moving hacks that will make your relocation easier as you can. The more time you have, the easier it will be to fulfill the requirement.
Furthermore, you do not need to stay at the same job all the time. You can change employers and work several jobs as long as you fulfill the necessary requirements. Working two jobs will not cut the time in half, unfortunately.
Normally, you are only able to track the time working in the new community after you relocate. However, there are a few exceptions to this test that might change that. The most notable exception is when you start working before your family relocates to your new home due to specific circumstances. This can happen due to various reasons, such as a spouse needing medical care or a child finishing their education. If this happens to be the case, you are still able to take advantage of tax deductible moving expenses even if you have started working long before the relocation.
The distance test is the second criterion determining the validity of moving expenses. This test will look at the distance between your old home and your new workplace. You can only claim deductions for moving expenses if your new workplace is at least fifty miles away from your old place of residence. If the distance is shorter, you will not be able to deduct any temporary storage options for moving, travel expenses, or any other moving expenses. Furthermore, your old place of employment also plays a part in the distance calculation. For example, let’s say you have worked for a company 40 miles away from you. To qualify for deducting moving expenses, you will need to find a workplace that is 90 miles away (40+50).
Also, if you are an active member of the U.S. military, the distance and time tests do not apply to you if you happen to be making a permanent change in your military status. Most commonly, this change involves either termination of service or retirement.
Tax deductible moving expenses for military personnel
Most of the time, the best way to file your taxes as a member of the military is to have a tax professional take care of it for you. The mental challenges of moving may make it, so you don’t want to revisit the subject anytime soon, not even to file any deductions. However, if you plan on taking care of moving deductions on your own, here’s how you do it.
Start by using Form 3903 to report all your moving expenses. You will want to write down all the shipping, storage, and packing costs necessary for moving your personal effects and household goods on line 1 of the form. On the second line, you will want to add any expenses that you have incurred on gas, travel, and lodging. If you have already received any reimbursements from your employer for any moving expenses, you note them on line 4. Lastly, if you have any reimbursements for any items on lines one and two, which are also not included in box 1 of your W-2, you note them down on line 4 as well.
Form 3903 also offers some directions, such as verifying the amounts by looking at your W-2. Most notably, you will need to verify that any amount that you have written under line 4 appears in box 12, code P.
The reason why verification is important is due to the fact that your reimbursement might exceed your total “out-of-pocket” expenses. If that happens to be the case, not only can you not deduct any moving expenses from that point on, but you will also have to claim the excess amount as taxable income. However, if the reimbursement was lower than what you actually spent on the relocation, you are allowed to deduct all of the out-of-pocket moving expenses from your taxable income.
Should you hire a moving company for your relocation?
Hiring a moving company will not preclude you from being able to deduct moving expenses. In fact, hiring a professional mover is usually in your best interest. That said, it is also important to properly research and compare moving companies before you hire any one of them. You can only deduct moving expenses if you have taken the shortest route to your new destination. This means that if your moving company decides to take another route (and charges you more), you may not be able to deduct all of the expenses.
It is important to note that packing and storage services rendered by a moving company also count as moving expenses and are, therefore, deductible. Do keep all the receipts and invoices, though, as you will need those to prove your moving expenses. Before you make a commitment to a moving company, though, make sure to talk to them about whether they are taking the shortest route to your new place of residence.
Moving on your own might be cheaper, and you might even get a reimbursement in excess of your actual moving expenses. If money is your primary goal, you should avoid hiring a moving company. However, performing a DIY relocation is incredibly tiring and stressful, and there are few people who want to go through this process more than once. In most cases, you will be much better off leaving the relocation effort to the professionals.
If you are looking to work with the best moving companies in the country and not worry about your move in the slightest, you can find all the information about them right here at the Consumer Opinion Guide. Our expert articles can also provide you with any information you might need to make your relocation smoother, easier, and more fun!