If you pulled up stakes last year due to a job change or relocation, you may be in line for a tax break on your 2016 return.
Strategy: Claim a deduction for job-related moving expenses. On the other hand, no deduction is allowed if you moved purely for personal reasons.
Of course, the IRS won’t simply take your word for it. To qualify for write-offs, you must meet a two-part test involving distance and time.
1. Distance test: Your new job location must be at least 50 miles farther from your old home than your old job location was from your former home. For this purpose, the IRS uses the shortest of the most commonly traveled routes to measure the distance between the two points.
2. Time test: If you’re an employee, you must work full-time for at least 39 weeks during the first 12 months after you arrive in the general area of the new job. But you don’t have to work for the same employer as long as the 39-week test is satisfied.
The test is tougher if you’re self-employed. In this case, you must work full time for (1) at least 39 weeks during the first 12 months and (2) a total of at least 78 weeks during the first 24 months after you arrive in the general area.
What expenses are deductible? Typically, you can write off the “reasonable” costs of moving household goods and personal effects to your new home, in addition to travel expenses (including lodging, but not meals) between the two locations. Normally, this will include charges by a moving company or a truck rental.
Reasonable costs include direct travel expenses directly from one location to the other. But costs attributable to side trips for sightseeing aren’t deductible. If you go by car, you can deduct the actual expenses for the move, assuming you keep all the necessary records or use the IRS-approved flat rate of 19 cents per mile, plus related tolls and parking fees (decreasing to 17 cents per mile in 2017).
Note that the majority of “indirect moving costs”—such as meals, house-hunting trips, temporary living expenses and attorney’s fees and real estate commissions related to the move—are nondeductible.
Tip: Reimbursements by an employer under an accountable plan are tax free to employees.