The expenses that one incurs while moving to a new place due to work-related assignments or a new job may be tax-deductible; however, there are certain terms and conditions laid down by the Internal Revenue Service (IRS) that must be fulfilled. These deductions are only permissible in case you are moving due to work, it does not matter whether it is a new job or your current organization has transferred you to a new location.
Normally, if your current organization transfers you to another city, they will be taking care of the expenses. But even then, you can deduct the amount that exceeds the reimbursement from your employer. To qualify for a deduction, you must meet two tests. One is known as the 'distance test', while the other is the 'time test'. Importantly, your move must be closely related, both in time and in place, to the start of work at your new location.
The commute from your old home to your new workplace must be at least 50 miles more than the commute from your old home to your old job. Let us take an example to illustrate this. Suppose, if you would travel 10 miles from your old home to your office, then your new office should be at least 60 miles away from your old home. If you had no previous workplace, your new job location must be at least 50 miles from your old home.
If you are an employee, you must work full-time for at least 39 weeks in the first year immediately following your arrival in the area of your new workplace. In case you are self-employed, the requirements for the first year are the same, i.e. 39 weeks, but you must also accomplish a minimum total of 78 weeks of work in the first 24 months. Some points to remember are that full-time does not necessarily mean working 40 hours a week, in some companies it can be 35 hours a week or lesser. Also, IRS does not demand that you need to stay with one company to complete your minimum requirement.
- Travel costs of yourself and your family members from your old home to your new home. This does not require all members to travel together or at the same time; however, expenses of only one trip per person can be deducted.
- The cost of packing and moving household goods and personal effects to the new location.
- In case you use your own vehicle for relocation, the standard mileage rate of 24 cents per mile, or actual expenses if you have an accurate record, can be deducted. You can also deduct fees for toll, parking, lodging, etc., but meals are nondeductible.
While filing your income tax return, enter them on Form 3903 provided by the IRS. Also, these expenses need to be deducted on Form 1040, line 26. You will have to keep proofs in support of your claim in the form of receipts, bills, etc.
Exceptions to Meeting Test Requirements
- In case of a married couple, only one spouse needs to meet the time and distance tests.
- If you on active duty in the Armed Forces and have been transferred due to a permanent change of station, these tests do not apply to you.
- Your transfer to the new location is for your employer's benefit.
- Your job at the new location ends because of disability, death, or layoff for a reason other than misconduct.
- You are a retiree who was working abroad, or the surviving family member of a person who dies while working abroad and you move in within six months of that person's death.
This statute is a big relief for those who are not averse to seeking out new opportunities in other locations. However, tax laws are modified very frequently, so make sure that you are aware about the changes. For more details and updates, you can check the IRS website.