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If you moved from one city to another for work before 2018, you typically got a tax break: Related out-of-pocket expenses were likely deductible from your federal income taxes. As of 2018 (and at least through 2025), that's no longer true, unless you're a qualifying member of the armed services.
The tax reform measure Congress passed in December 2017 increased the standard deduction for most U.S. taxpayers, but it also eliminated or reduced several miscellaneous deductions that could be used to reduce tax liability. The deduction for out-of-pocket moving expenses was one of the casualties of these tax changes.
Who Can Deduct Moving Expenses?
As explained in greater detail in the instructions for IRS Form 3903, as of 2018 the only U.S. taxpayers who can claim tax deductions for moving expenses are active-duty military members relocating under permanent change of station orders. Qualified expenses include costs related to moving personal property and household goods, and travel costs associated with the move, including an allowance for personal-vehicle travel at 18 cents per mile.
How It Used to Work—and May Again
The tax reform law, formally known as the Tax Cuts and Jobs Act of 2017, took effect January 1, 2018. That means if you moved for non-military work during 2018—or if you will anytime now through 2025, when the 2017 provisions will expire unless Congress extends them—you can't deduct those moving expenses.
Prior to 2018, you could deduct expenses related to a work-related move, provided your move met the following conditions, or "tests":
- Start of work test: For you to deduct relocation expenses, your move had to have taken place within one year of you starting work at your new location. This applied to moves initiated following a work reassignment, acceptance of a new job in the destination community, or to moves made with the intention of seeking (and eventually obtaining) work in a new location.
- Distance test: Your new workplace had to be at least 50 miles farther from your previous residence than your old workplace was. For example, you if previously traveled 15 miles to work from your house or apartment, your new place of work would have to be at least 65 miles from that residence for your moving expense to qualify for a deduction.
- Time test: You had to have worked full time at the new job location for at least 39 weeks during your first year of employment there to qualify for the moving expense deduction. If you were self-employed at the time of the move, you'd need to have worked 78 weeks during your first two years at the new location. In either case, you could deduct the expenses from taxes paid for the year the move took place, even if you hadn't yet satisfied the full time-test requirements.
What if My Company Pays My Moving Expenses?
The 2017 tax reform also changed how payments employers make to employees to cover moving costs are taxed. Before 2018, those reimbursements were treated as "above the line" deductions from your taxable income: Even if you didn't claim any itemized deductions on your tax return, you could still subtract moving expenses from your gross income before calculating your taxable income. Not under the new tax law: Now you must declare those reimbursements as income, and they are subject to tax.
One important exception to this could provide 2018 tax relief for a select few taxpayers: If your employer reimbursed you in 2018 for a move you completed in 2017, you do not have to pay tax on that sum. Details on this exception are spelled out in an IRS guidance memo.
These tax changes indirectly increase the cost of relocating for work, and you should plan accordingly if a move is in your future. Or sit tight until 2025 and see if Congress allows the old deductions to take effect once more.
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