Moving can be stressful and fraught with uncertainties as well as hidden expenses. Fortunately in California, for tax years prior to 2018, you may be able to deduct expenses related to relocating for work on both your state and federal income tax returns. Although recent tax reforms have done away with moving expenses, you're still able to claim these write offs for tax years 2017 and prior. As with most things, there are a few tests or requirements that must be satisfied in order to determine your eligibility to deduct these expenses.
TL;DR (Too Long; Didn't Read)
Prior to the 2018 tax reform laws, individuals could deduct the vast majority of expenses associated with relocation for work, such as moving supplies, rental vehicles, etc. For the upcoming tax year, however, these expenses will not be considered an eligible deduction on the federal or state level.
If you moved to start a new job, or had to relocate for your existing job, you may be able to deduct your expenses if they were not reimbursed by your employer. However, there is one instance in which you can write off reimbursed expenses – if they were reimbursed by your employer, but were included in your employee compensation or salary.
First, you must satisfy distance and time tests. In order to be able to claim these expenses, your new place of employment must be at least 50 miles farther away than your old home was from your old job. In the event you moved for a new job, and had no previous employer, then your new workplace must be at least 50 miles away from your previous home.
You also have to meet the time test requirements. This time test states that you needed to have worked on a full-time basis for at least 39 weeks during the first year of your move. These 39 weeks did not have to be consecutive or all with the same employer. For instance, you moved to California with your employer, then got laid off. You could have found another job and continued working for the remainder of the year to reach the 39 weeks and still be eligible to claim this write off. Keep in mind, if you were self-employed for the tax year in question, there is a different, lengthier time test before you can claim your business-related moving expenses.
It's worth noting, if you are a member of the Armed Forces, and your move was due to a military relocation or assignment, you do not have to satisfy these time or distance tests. Active members of the Armed Forces are also still able to claim moving expenses, and are exempt from this new tax reform change.
How To Deduct These Expenses
While writing off moving expenses is often called taking a deduction, they are not itemized deductions, as you enter moving expenses on line 26 of IRS Form 1040. Moving expenses are an adjustment to your taxable income. You will, however, need to also attach IRS Form 3903, Moving Expenses, to complete claiming these expenses on your IRS Form 1040. On your California state income tax returns, you will use Schedule CA (540), California Adjustments, in addition to the IRS Form 3903, Moving Expenses.
Generally, states follow IRS guidelines for these expenses, but check with the California Franchise Tax Board for the most up-to-date information. Hopefully you kept meticulous records and receipts from all expenses you incurred during the course of your relocation, a qualified tax professional will be able to assist you in determining what you can claim and what you cannot. And with excellent record-keeping, in the event of an IRS audit, you will be prepared.
Which Expenses Are Deductible?
The rules on what you can deduct in moving expenses are fairly detailed. You're able to write off things such as the cost of shipping your items from your old residence to your new one, transportation costs for relocating all members of your family as well as storage for up to 30 days until you can moved into your new home. You cannot, however, deduct the cost of your meals, any rents paid while relocating or the cost of obtaining a new driver's license, for example.
- IRS.gov: Publication 521 -- Moving Expenses
- IRS.gov: Topic 459 -- Moving Expenses
- IRS.gov: Form 3903, Moving Expenses
- UC Davis: 2018 Tax Policy Changes
- US Tax Center: Tax-Deductible Moving Expenses
- California Franchise Tax Board: Schedule CA (540) Instructions 2017
- H & R Block: Tax Reform Eliminates the Moving Expense Deduction
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