The Internal Revenue Service moving expense deduction decreases adjusted gross income for qualified taxpayers who file taxes using IRS Form 1040. As long as you meet IRS distance and time tests, the moving expense deduction applies whether you work as an employee or are self-employed. Unlike with some tax deductions where you can deduct only a percentage of the total, IRS Form 3903 Moving Expenses allows you to deduct 100 percent of qualified expenses. The “catches” are that only certain expenses are eligible and the move must be job-related.
IRS Distance Test
To meet the distance test, your new job must be at least 50 miles further from your previous residence than your old job location was. If you were previously unemployed, the new location must be at least 50 miles from your home. For example, if your previous job was 20 miles from your home, your new job site, or residence if you’re self-employed, must be at least 70 miles away.
IRS Time Test
Meeting the time test requirement if you work as an employee requires that you work full time at the new location for at least 39 weeks of the next 52 weeks, starting on the day you arrive. These requirements double if you’re self-employed. To qualify, you must work full time for at least 39 weeks of the next 52 weeks for two consecutive years.
Allowable Test Exceptions
There are certain exceptions to both the distance and time tests. The exception to the distance applies to U.S. military active duty members who can deduct out-of-pocket moving expenses regardless of the distance. The exception to the time test applies when you move to start work, but special circumstances such as waiting for the school year to end, require that your family move to the new location later.
Although you can transfer 100 percent of the amount entered on Form 3903 line 5 to line 26 of Form 1040, only expenses that are reasonable and necessary for your situation and for which your employer does not provide reimbursement will qualify. According to IRS Publication 521, Moving Expenses, these include costs such as moving company or rental truck expenses, packing supplies and short-term storage costs at your new location. You can also deduct fuel, oil, highway tolls, air fare and lodging. However, meals are not an allowable expense.
Some expenses that relate directly to the move do not qualify. These include house hunting expenses, costs related to breaking a lease, selling your old home or purchasing a new home, and security deposits.
- XiXinXing/XiXinXing/Getty Images