Making a big move can cost a bundle, but there’s a silver lining: Your moving costs might cut your income tax bill.
“It’s a tax break a lot of people miss,” said Kelley Long, a CPA and certified financial planner for Financial Finesse.
So, how do you know if you qualify? In general, you must meet three basic requirements, according to the IRS:
You’re moving for work.
In IRS lingo, your move must be “closely related to the start of work” in time and place. Generally, that means you start work in the new place within a year of your move and moving puts you closer to your new job.
You work enough hours.
If you’re an employee, you have to work full time for at least 39 weeks in the first year after you arrive in your new town. If you’re self-employed, you must work 39 weeks full time in the first year and a total of 78 weeks full time in the first two years after your move, according to the IRS.
You move far enough away.
Your new workplace must be 50 miles farther from your former home than your old workplace was. For example, if you used to live five miles from work, your new job must be 55 miles from your old home, said Eric Tyson, author of “Personal Finance for Dummies.” He said: “Moving to the next town over can be an ordeal, but it’s not nearly as expensive as moving three states away.”
If you’re moving, learning the ins and outs of IRS rules can help you cut the amount you owe Uncle Sam. Here are five things you need to know.
1. You don’t need a job lined up before you move.
Maybe you’re sick of snow, so you’re going to move to Miami, FL, and find employment once you get there. As long as you do get a job, you still can qualify for the tax break, Long said. “The new job doesn’t have to be the reason behind the move — it’s just the two things paired together,” she said.
2. Don’t forget to deduct everything you can.
Of course, you can deduct the cost of movers and truck rental, but there are a lot more expenses allowed by the IRS. “It’s every box, every roll of packing tape, every Sharpie,” Long said. You also can deduct costs of disconnecting and hooking up your cable, electricity and other utilities. You can count the cost of storing (and insuring) your stuff, but only for 30 consecutive days between the time you leave your old home and move into your new one. Furthermore, you can deduct the cost of shipping your dog, cat — or even your pet gerbil — to your new city, Long said.
3. You can’t take the scenic route.
If you decide to take a detour to the Grand Canyon on your move from Pennsylvania to California, don’t expect to write that off on your taxes. You can count costs only if you take the shortest, most direct route to your new home, according to the IRS. So, you can’t deduct the cost of side trips or mini-vacations along the way, Long said.
4. Food doesn’t count as a moving expense.
From the time you pack your last plate, pan and fork, until you’ve unpacked and set up your new kitchen, you’ll probably live on a steady — and expensive — diet of restaurant meals. The bad news: The IRS won’t let you deduct any of it, Tyson said. While you might spend more on food while moving, it would be hard to calculate how much more. “You have to eat anyway,” Tyson said.
5. You can deduct expenses reimbursed as part of your salary.
If your employer paid you extra to compensate you for your moving costs, you can deduct those expenses, according to tax preparation company TaxACT. Check Box 12 of your W-2 and look for an amount labeled “code P,” according to TaxACT. That means your employer reimbursed you with taxable income, and you should take a deduction to avoid paying income tax on your moving costs.
Remembering to deduct your moving costs can easily cut hundreds of dollars off your income tax bill because moving costs are “above-the-line” deductions, meaning they come right off your gross income, Long said.
“It can be a significant savings,” she said.
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