Moving can be stressful and expensive, and you may be wondering if you can deduct any of those moving expenses to ease the financial burden. Unfortunately, tax laws have changed since 2017, and most people are no longer eligible for moving expense tax deductions. However, if you’re active-duty military or live in certain states, there are still ways you can deduct those costs.
This article will break it down for you and show how you can potentially save on your next tax bill.
Who Can Still Deduct Moving Expenses?
Military Exceptions
Active-duty military personnel moving due to a permanent change of station (PCS) can still claim deductions for moving expenses. This includes transportation of household goods, car shipping, storage fees, and travel-related costs incurred during the move. However, the move must be closely related to your military orders.
Eligibility for Other Taxpayers
For most taxpayers, moving expenses are no longer deductible after the passage of the Tax Cuts and Jobs Act (TCJA) in 2017. However, some states—such as New York, New Jersey, and California—still allow moving expense deductions on state taxes. It’s important to check your state tax rules to see if you’re eligible for any relief.
The Essential Tests You Need to Pass
The Distance Test
To qualify for moving expense deductions, your new workplace must be at least 50 miles farther from your old home than your previous job location. For example, if your old job was 10 miles away from your home, your new job needs to be at least 60 miles away from that home to qualify.
“Note: Active-duty military members are not required to meet the distance test to claim moving deductions.”
The Time Test
In general, you must work full-time for at least 39 weeks during the first 12 months after your move to qualify for a moving expense deduction. This requirement ensures that the move is closely related to starting your new job.
“Note: Again, this test does not apply to military personnel moving due to a PCS.”
What Moving Expenses Can You Deduct?
The IRS has strict guidelines on which moving expenses qualify for deductions. For military personnel, these expenses must be directly related to your move under military orders.
Eligible Expenses
- Transportation of Household Goods: Moving your furniture, clothes, and personal items.
- Car Shipping: Costs associated with shipping your car to your new location if you can’t drive it.
- Storage: The cost of storing your household goods for up to 30 days.
- Travel Expenses: The cost of travel (e.g., gas, lodging) while moving, but not including meals.
Expenses You Can’t Deduct
- Meal Expenses: Costs of food during your move are not deductible.
- Costs Related to New Home: Expenses related to purchasing or renting a new home (e.g., closing costs, down payments) are not eligible.
- Reimbursed Expenses: If your employer reimburses any moving expenses, you cannot deduct those from your taxes.
Can You Deduct Car Shipping Costs?
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Yes, car shipping costs can be deducted as part of your moving expenses if you’re a military member moving due to a PCS or if you qualify for state-specific deductions. For example, if you have more than one vehicle or if the distance is too far to drive, you may incur significant car shipping costs.
Before proceeding, it’s a good idea to get a car shipping cost estimate to understand how much you can expect to spend, as these expenses qualify as part of your overall moving deductions, as long as they were necessary for the relocation. For this you can get into contact with different companies engaged in car shipping.
Tips for Deducting Car Shipping
- Document Expenses: Keep all receipts related to car shipping, including bills from transport services.
- Verify Eligibility: If you’re not in the military, check whether your state allows deductions for car shipping costs.
Moving Expenses for Military Personnel
Military members on active duty are eligible for moving expense deductions, provided the move is directly related to their PCS. These moves include the transportation of household goods, car shipping, lodging, and other moving-related expenses.
Filing With IRS Form 3903
To claim these deductions, you must file IRS Form 3903 along with your tax return. This form is specifically designed for military personnel to report their moving expenses. The form asks for details about your moving costs, transportation expenses, and whether any costs were reimbursed by the military.
Here’s a brief guide on how to complete IRS Form 3903:
- Line 1: Enter your total moving expenses (including car shipping, storage, etc.).
- Line 2: Enter any reimbursements from the government or employer.
- Line 3: Subtract line 2 from line 1 to get your deductible amount.
State-Specific Moving Expense Deductions
Though federal tax law no longer allows most taxpayers to deduct moving expenses, several states still provide deductions. These states include:
- New York
- New Jersey
- California
Each state has its own rules, and the requirements may vary. For example, California residents may still qualify for deductions under state law, even though they cannot claim them on their federal taxes. Be sure to check with your state’s tax authority or consult a tax professional for guidance.
How to Claim Deductions on State Taxes
- Review your state’s eligibility requirements for moving deductions.
- Collect all documentation, including receipts for car shipping, transportation, and other deductible expenses.
- File the necessary forms with your state tax return, ensuring that all expenses are properly documented.
Common Mistakes to Avoid When Claiming Moving Expenses
Overlooking Key Details
Many taxpayers miss out on deductions by failing to meet the distance or time test. Others mistakenly try to deduct expenses that aren’t eligible, like meals or costs related to purchasing a new home.
Avoid Double Dipping
Don’t try to deduct moving costs that have already been reimbursed by your employer. The IRS will reject these deductions if they’ve already been covered, so be careful to exclude any reimbursed expenses from your deduction claims.
How to File and Claim Moving Expenses on Your Taxes
For Military Members
Active-duty military personnel should file IRS Form 3903 to claim deductions. Be sure to keep detailed records of all moving expenses and any reimbursements received. Military moves are generally straightforward when claiming deductions, so focus on ensuring your documentation is complete.
For State Deductions
If you’re claiming a deduction under state law, make sure to follow your state’s specific rules. State deductions may differ significantly from federal ones, so double-check eligibility criteria and filing requirements.
Conclusion
While the Tax Cuts and Jobs Act (TCJA) eliminated moving expense deductions for most taxpayers, military personnel and some residents in certain states still qualify for this valuable tax relief. Whether you’re moving across the country for military service or simply relocating for work, understanding the rules for moving expenses, car shipping, and other deductions can help you save money. Be sure to document everything, check your eligibility, and file the right forms to make the most of your move.
