Tax time is upon us, and if you’ve recently moved, you may be able to deduct certain expenses. Here’s what you need to know about using this deduction (but remember, it’s always best to consult a tax professional with any questions).
The Internal Revenue Service has three basic “tests” for determining if your move qualifies for a deduction:
- The “Closely Related to Starting Work” Test
- The “Distance” Test
- The “Time” Test
Closely Related to Starting Work
This rule applies to both time and distance.
For your move to qualify, you must relocate within a year of starting a job in a new location, according to the IRS. You can move before taking a new job in a new location, as long as you start working there within the year timeframe.
If you start work in a new location and don’t make the move within a year, you typically can’t claim the deduction unless you can show there were circumstances that prevented you from moving within the allowed year.
Moves are considered closely related in place if the distance from your new home to the location of a new job is less than the distance from your former home to the job, according to the IRS. Exceptions are if you are required to live at your new home as a condition of employment, or if it will take less time or require you to spend less money commuting from your new home to your new job.
The Distance Test
IRS rules dictate that for a move to be eligible for a deduction, “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.” For example, if your commute from home to work was six miles, your new job must be located at least 56 miles from where you lived previously.
The IRS website features a worksheet to help you determine if your move is eligible.
For those just entering the full-time workforce or for those returning to full-time work after a period of unemployment or part-time work, the 50-mile rule still applies.
The only exception to the distance test is for armed forces members who moved because of a permanent change in station.
For those who have more than one job, moving expense deductions must relate to your main job location. Factors to consider when determining your main job location include the amount of time you spend at each workplace, the amount of work you do at each location and how much you earn at each workplace, according to the IRS.
The Time Test
In order for your move to pass this test, you must have worked at least 39 weeks in the year immediately following your relocation.
If you are self-employed, that guideline still applies, but can be extended to at least 78 weeks in two years, but you must work in the same general commuting area for all of those 78 weeks.
This table from the IRS can help you determine if you meet the time test based on your circumstances.
Exceptions do exist for some factors such as death, disability or involuntary separation. More about those exceptions can be found here.
Expenses can be deducted prior to meeting the requirements time test if you expect them to be met in the following year, or in the case of self-employment, in the following two years.
If you take the deduction and don’t meet the time test in the subsequent year or years, you must either report the deduction as other income or amend your filing. Likewise, if you don’t deduct the expenses but want to later, you can later file an amended return and claim it later.
If you aren’t sure when to claim it, this When to Deduct Expenses document from the IRS can help. The document also includes a hypothetical example, as well as an example of Form 3903 on which moving expenses are claimed as a deduction.
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