Did you move in 2016? Even if you didn't move specifically to start a new job, you may still take advantage of a lucrative tax break for moving expenses. The best part is you can use the tax break for moving expenses even if you don't itemize deductions on your tax return.
Does your move qualify?
In order for your move to qualify for the moving expense deduction, it must meet the requirements of two "tests," known as the time test and distance test.
The time test is easy enough to understand, and tells whether your move was "work-related," per the Internal Revenue Service's definition. Basically, if you worked full-time (or anticipate working full-time) for at least 39 weeks during the 12-month period immediately following your move, you pass the time test. If you're self-employed, there is an additional requirement of working for at least 78 weeks within the first 24 months of moving.
The distance test is a little bit trickier. According to the IRS's wording, " Your move will meet the distance test if your new main job location is at least 50 miles farther from your former home than your old main job location was from your former home."
This is best explained with an example. Let's say that your former home was 15 miles from your former job and that your new job location is 70 miles away from your former home. The difference between these two distances is more than 50 miles, so you would pass the distance test.
What expenses can you deduct?
If you qualify based on the two tests I described earlier, you can deduct the "reasonable" costs of moving your personal property, as well as travel expenses to get to your new home.
By reasonable, the IRS means that the expenses you deduct need to be appropriate for the circumstances of your move. An example they give is that you need to take the shortest and most direct route to your new home, so if you extend the trip to do some sightseeing, the additional expenses you incur don't count.
Here's a rundown of some of the major types of moving expenses that can be deducted:
- Travel to your new home: If you drive, you have a choice between deducting your actual expenses (gas, parking, tolls, etc.) or using the standard mileage rate for moving, which is currently $0.19 per mile. If you fly, take a train, or use any other sort of transportation, you can deduct the actual cost.
- Cost of moving your personal property: This includes the cost of packing and transporting all of your personal property and that of your other household members. Costs of shipping your car(s) and pet(s) are also deductible.
- Storage expenses: The cost of storing your possessions for up to 30 days (such as in a self-storage unit) are deductible.
- Lodging expenses: Including the day you arrive at your new home and lodging before you permanently left your former home after your furniture was moved.
Unfortunately, there are some moving-related expenses you can never deduct, such as meals -- even while traveling to your new home. You also can't deduct expenses such as the cost of new car tags or a new driver's license, costs associated with selling a home, and any return trips to your former residence. It's also important to point out that you can't use the same expense as a moving deduction and business deduction, since several moving expenses could potentially qualify for either.
This can be a big tax break
As anyone who has completed a major long-distance move can tell you, the total cost can get rather high. The last time my wife and I moved, for example, our moving expenses were nearly $3,000, and we didn't hire movers or have anything shipped.
Perhaps the best part of the moving expenses deduction is that it's one of the few "above-the-line" deductions, which means that you can take advantage whether or not you itemize on your tax return. It's in the same category as the deduction for retirement savings -- regardless of your other deductions, it simply lowers your adjusted gross income (AGI), which can also be important to qualify for other tax breaks. Just to name a couple of examples, tax breaks for college tuition and the deduction for mortgage insurance are subject to AGI thresholds.
The bottom line is that the deduction for moving expenses could potentially be worth thousands to you, and could also help you qualify for other tax breaks as well. If you moved in 2016, it's certainly worth your time to see if you might qualify.