Marc Ang discusses the three tests to qualify if your recent geographical move (related to work), is seen by the IRS as a qualified work related move, and which aspects of your moving journey are considered deductible moving expenses. Since the IRS rules on moving can be very dry, Marc brings up some good real life examples, including his own move.
Did you make a move due to a job that stationed you in a new city? Or maybe you yourself decided to take on a new job in another state?
If that’s the case, this blog will help inform you on the IRS rules on moving, and also explain how you are able to take a portion out of your moving costs.
- You may not deduct meals while on the road.
- You must meet the three requirements:
- Pass the distance test.
- Pass the time test.
- Your move relates to the start of work.
I’ll share a story from personal experience. When I moved across country from New York to Los Angeles, I took about six weeks off to leisurely drive across country, but every cost incurred was faithful to the most direct route from New York to Los Angeles, so I was able to deduct hotel lodging, 19 cents per mile, gas costs and one oil change. During this time, I was able to sightsee through Harrisburg, PA, the beautiful Shenandoah valley, have great barbeque in Mississippi, the Alamo, great Tex-Mex food in New Mexico, and enjoy the river casino town of Laughlin, Nevada.
The “Distance Test“
The first test is the distance test. The IRS rule is as follows: “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.”
So this means that if your current commute to your job is 35 miles, and you take on a new job, this new job must be 85 miles away now from your current home for this to qualify as a “work related move“. The basic rule is add 50 to your current commute.
- Example: Sally currently lives in LaVerne and commutes 25 miles to Pasadena.
- She is offered a job in Murrieta which is 60 miles away. Unfortunately, this does not qualify as a “work related move” because she needs to move at least 75 (math: 50+25) miles away for this to qualify as a move.
- Sally is offered a job in Palm Springs which is 80 miles away. This qualifies as a “work related move” because 80 exceeds 75.
The “Time Test“
IRS says: “If you’re an employee, you must work full-time for at least 39 weeks during the first 12 months immediately following your arrival in the general area of your new job location. If you’re self-employed, you must work full time for at least 39 weeks during the first 12 months and for a total of at least 78 weeks during the first 24 months immediately following your arrival in the general area of your new work location. There are exceptions to the time test in case of death, disability, and involuntary separation, among other things. See Publication 521 for these exceptions.”
So this means no funny business. You don’t get to move somewhere, become unemployed and then decide to write off the moving expenses.
- Example: Caleb currently lives in Eureka, but quits his job because he’s bored out of his mind in the small town. He decides to move to San Diego to pursue his love of surfing.
- Caleb ends up with a part time job at the surf shop for the next year. OUTCOME: No deductible moving expenses.
- Caleb ultimately starts a new job for 6 months, but ends up quitting and doesn’t work again in the first 2 years after the move. OUTCOME: No deductible moving expenses.
- Caleb starts his own surf shop business, and runs it successfully for 1.5 years. OUTCOME: Can take deductions for the “work related move”.
- Caleb starts his own surf shop business but closes shop after 6 months and doesn’t start it back up. OUTCOME: No deductible moving expenses.
The “Start of Work” Test
IRS says, “Your move must closely relate both in time and in place to the start of work at your new location. You can consider moving expenses incurred within one year from the date you first reported to work at the new location as closely related in time to the start of work. A move generally relates closely in place if the distance from your new home to the new job location isn’t more than the distance from your former home to the new job location. For exceptions to these requirements, see Publication 521, Moving Expenses.”
This means that you have to actually start your new job within a reasonable time. But the IRS does make exceptions.
Example: Mary is a single mom and she quits her job in San Francisco to move to Orange County. Her daughter has been hanging with the wrong crowd, and she wants to take a year and a half off to spend some quality mother-daughter time to get her daughter on the right track. OUTCOME: An exception can be made, and Mary can likely qualify for deductible moving expenses.
Deductible Moving Expenses
Now that the 3 tests have been satisfied, IRS allows the following to be considered as deductible moving expenses:
- Moving your household goods and personal effects (including in-transit or foreign-move storage expenses), and
- Traveling (including lodging but not meals) to your new home.
Example: When I moved across country, I was able to deduct the most “direct” route from New York to Los Angeles. If I made any detours, such as going down to Florida (which would have been out of my way), that is not deductible. Oil changes, gas and 19 cents per mile are deductible, and lodging (i.e. hotel rooms) during the week-long journey.
Non-Deductible Moving Expenses
According to the IRS, the following are not considered as deductible moving expenses:
- Any part of the purchase price of your new home.
- Car tags.
- Driver’s license.
- Expenses of buying or selling a home (including closing costs, mortgage fees, and points).
- Expenses of entering into or breaking a lease.
- Home improvements to help sell your home.
- Loss on the sale of your home.
- Losses from disposing of memberships in clubs.
- Mortgage penalties.
- Pre-move househunting expenses.
- Real estate taxes.
- Refitting of carpet and draperies.
- Return trips to your former residence.
- Security deposits (including any given up due to the move).
- Storage charges except those incurred in transit and for foreign moves.
Hopefully this information will help you become more knowledgeable about the IRS rules on moving and qualifying for a work related move. Happy moving!
Marc Ang (Mangus) is a financial planner based in Claremont, CA, focused on spreading the gospel about responsible, educated and smart financial planning.