Tax Implications of Long Distance Moving

Though you might not have considered this when you began planning your move, there are a number of tax related implications that you will have to look at when you sit down to file the year after relocation. Moving to your new home, especially if it is some distance from your old home, can be the trigger for a number of taxable circumstances, some of which can be beneficial to you and your ultimate refund. Regardless of if they are to your benefit or not, it’s important to know how to approach your tax return the year that you find yourself relocating.

The Tax Deduction Maze
There’s a silver lining to the moving process, regardless of how far or how difficult your move might be. That silver lining to the storm this event brings to your life is the fact that you can often deduct a lot of the expenses involved on your tax return the year following your move. In order to qualify for the moving tax deduction, you must meet a few requirements. They are:

  • The Distance Test – The IRS requires that you look at the distance your old home is to your new place of employment, versus the distance your new home is to that location. In order to qualify for this deduction, your new home must be at minimum fifty miles closer to that location than your old home.
    • Example: You used to drive ten miles to get to work. Now you found a new job where you have to drive seventy miles to get to work. If you move, your new home must be fifty miles closer, so that you will be driving only twenty miles, in order to qualify for this deduction.
  • The Time Test – The IRS states, in order to qualify for the moving deduction on your taxes, that you must be moving because of your job and not just because you need a change of scenery. In order to prove this, you must work at least 39 weeks of the first year you are in your new location.
    • Example: If you move, and then find a job a month later working full time, you can claim your expenses related to moving as long as you continue to work full time at that job for the next 39 weeks.
    • Important!: If you are self employed, you must continue to work as self employed for 78 weeks of the next 2 years in order to qualify for this deduction, but you still must claim this on your taxes the year following the move or you will be disallowed.
  • Time/Start Relation – The final test you must meet to qualify for the tax deduction in this case relates to when you start working. The IRS only allows you to deduct expenses that were incurred within 12 months of starting your new job.
    • Example: If you started a new job in March of 2012, you can claim moving and storage expenses through March of 2013. However, you cannot claim expenses related to moving in April of 2013.

Taxable Income Versus Tax Deductible Options
It is very important to know what will count as taxable income during a move. While you might love the idea of your employer offering relocation assistance, you should be careful to ensure you are not getting trapped in a tax catastrophe. Here are a couple of simple rules:

  • Employer reimbursement for moving services, storage, and travel are known as ‘excludable expenses’ and are not counted as income, nor can these expenses be deducted.
  • Lump sum payments for relocation are considered taxable income, however, you can deduct the expenses you pay for from this sum on your tax return, making it essentially non-taxable income.
  • Reimbursements for living, anything before the move, meals, and other expenses will be taxed as if they were regular wages.

Regardless of which options you take, be sure that you keep all of your receipts throughout the process. It is only by having these documents of proof that you will be able to deduct anything from your taxes at all. Remember, being organized is the first step to ensuring that your move goes smoothly, so create a special place for these receipts and keep them all together so when it comes time to file your taxes, you have a very simple task ahead of you.