Are Moving Expenses Tax Deductible in North Carolina?

Qualified moving expenses are deductible on North Carolina state taxes, but only indirectly. Like many states, North Carolina uses your federal income tax return as the starting point for calculating your state taxes. As a result, a moving expenses deduction you claim on your federal taxes "flows through" to your North Carolina state return. Of course, your moving expenses still have to qualify for the federal deduction.

In most cases, to qualify for the federal moving expenses deduction — and thus transfer the deduction to your North Carolina state taxes — your move must meet three criteria. First, it must be job-related. In most cases, the Internal Revenue Service (IRS) says you must make the move within one year of starting a new job or beginning work in a new location. Second, your new workplace must be far enough from your old home that, had you stayed in your old home, the trip to work would have increased by at least 50 miles. For example, if you lived in Raleigh, North Carolina, and had a 10-mile commute, your new workplace would have to be at least 60 miles from your home. If you took a job across the state in, say, Asheville, that would be more than 200 miles from your old home, so you'd qualify. Third, you must work full time for at least 39 weeks in the year after the move. These are general rules; IRS Publication 521 goes into greater detail on the requirements and exceptions.

To determine the size of your federal moving expenses deduction, fill out IRS Form 3903 and enter the result on the indicated line on Form 1040, your federal tax return. The moving expenses deduction is an "above-the-line" deduction, meaning you don't have to itemize your deductions to claim it. Fill out the rest of your federal return to determine your federal taxable income, which you'll need to do your North Carolina taxes.

When you use North Carolina's state income tax return, Form D-400, to figure your state tax liability, you start with your federal taxable income, then make adjustments based on differences between North Carolina and federal tax law. Enter your federal taxable income on Line 6 of Form D-400. Your federal taxable income includes your deduction for moving expenses, so at this point the deduction transfers to your state return.

Form D-400 walks you through several adjustments to your federal taxable income to determine your North Carolina taxable income. These adjustments do not affect the moving expenses deduction. If you claimed a $10,000 federal deduction for moving expenses, then you'll realize the full $10,000 reduction when computing your North Carolina tax.