If you moved in 2014, you may be able to save hundreds or even thousands of dollars on your taxes this year. Technically, this deduction is aimed at people who moved for work-related reasons, you might qualify even if you didn't have a job lined up before you moved.
And perhaps the best part of all is that the moving expenses deduction is an "above the line" deduction, meaning you can take it whether or not you itemize.
Two tests to pass
Essentially, in order to claim a tax deduction for moving expenses, there are two tests that your move needs to pass -- the time test and the distance test.
The time test is simple. It says that in order to be eligible for the deduction, you must work full-time 39 out of the 52 weeks immediately following your move-in date. So, even if you found a job a couple of months after you moved, you could still be eligible to take the deduction.
And, there are exceptions to the time test if you become disabled or get involuntarily separated from your job. For example, if you moved, started a new job, then got let go, you could still qualify for the deduction.
The distance test is a little trickier, since it is based on both the location of your homes and workplaces before and after the move. According to the IRS's wording, "Your new workplace must be at least 50 miles farther from your old home than your old job location was from your old home. If you had no previous workplace, your new job location must be at least 50 miles from your old home."
What qualifies as a moving expense?
If you meet the requirements, you can deduct expenses related to traveling and moving your possessions from one place to the other. Among the expenses you can deduct are:
- Expenses incurred in driving to your new home, using either the standard mileage rate (currently 23.5 cents per mile) or your actual expenses (you can deduct parking fees and tolls regardless of which method you use)
- Cost of packing your belongings
- Shipping costs for belongings, cars, pets
- Storage expenses
- Lodging expenses
- Costs of moving your belongings (movers, rental truck, etc.)
What you can't deduct
Unfortunately, you can't deduct all of the expenses you're likely to incur when you move. Some non-deductible expenses include (but are not limited to):
- Driver's license or registration costs
- Expenses related to buying or selling your home
- Any loss on the sale of your home
- House-hunting expenses
- Any return trips to your former residence
- Any expense you also claim as a business expense (no double deductions)
How much could you save?
The cost of a move depends on several factors, including how far you're moving, how much stuff you have, and whether or not you hire professionals.
According to the American Moving and Storage Association, the average cost of an out-of-state move is $5,630. And this is based on a distance of 1,220 miles, so it is fair to say that many moves cost substantially more.
For example, a married couple with $100,000 in taxable income would save more than $1,400 on their taxes for an "average" move. Depending on your marginal tax rate, you could see a pretty big tax savings whether or not you itemize deductions on your tax return.
Make sure you save your receipts
You should always be able to document any tax deductions or credits you claim, but it is especially important with high-dollar credits like this one. Even though it may be completely legitimate, the IRS tends to take a closer look at large deductions, and as we have seen, moving expenses can easily run into the five-figure range depending on how far you move and how much stuff you have.
However, if you pass the time and the distance tests, then start gathering all of your receipts and records. It could mean lots of extra cash in your pocket this tax season.