Are Moving Expenses Tax Deductible?

 

On December 22, 2017, President Donald Trump signed the Tax Cuts and Jobs Act of 2017 into law which provided the most significant changes to the Internal Revenue Code in the last 30 years.  One of the rule changes affects the deductibility of moving expenses on your individual federal tax return.  For most taxpayers between the years 2018 and 2025, moving expenses are not tax deductible.

 

PRE-TAX CUTS AND JOBS ACT RULES FOR MOVING EXPENSES

Generally, the Internal Revenue Code allowed as a tax deduction any “moving expenses” that were “paid or incurred during the taxable year in connection with the commencement of work by the taxpayer as an employee or as a self-employed individual at a new principal place of work.”  26 U.S.C. §217(a).  In addition, an employee is permitted to exclude from gross income any amount paid in wages intended to be reimbursement of moving expenses.  26 U.S.C. §3401(a)(15); 26 U.S.C. §3121(a)(11); 26 U.S.C. §3306(b)(9).

“Moving expenses” means “only the reasonable expense of moving household goods and personal effects from the former residence to the new residence, and of traveling (including lodging) from the former residence to the new place of residence.”  26 U.S.C. §217(b)(1).  Generally, “expenses paid or incurred for movement of household goods and personal effects or for travel (including meals and lodging) are reasonable only to the extent that they are paid or incurred for such movement or travel by the shortest and most direct route available from the former residence to the new residence by the conventional mode or modes of transportation actually used and in the shortest period of time commonly required to travel the distance involved by such mode.”  26 CFR §1.217-2(b)(2)(i). “Thus, if moving or travel arrangements are made to provide a circuitous route for scenic, stopover, or other similar reasons, additional expenses resulting therefrom are not deductible since they are not reasonable nor related to the commencement of work at the new principal place of work.”  Id.

Eligible moving expenses include, but are not necessarily limited to, the following:

• Expense of moving household goods and personal effects: These include the expenses of transporting goods and effects from the taxpayer’s former residence to his new residence, and expenses of packing, crating, and in-transit storage and insurance for such goods and effects (including any costs of connecting or disconnecting utilities required because of the moving of household goods, appliances, or personal effects). However, expenses of moving household goods and personal effects DO NOT include, for example, storage charges (other than in-transit), costs incurred in the acquisition of property, costs incurred and losses sustained in the disposition of property, penalties for breaking leases, mortgage penalties, expenses of refitting rugs or draperies, losses sustained on the disposal of memberships in clubs, tuition fees, and similar items. 26 CFR §1.217-2(b)(3).

• Expenses of traveling from the former residence to the new place of residence: These include the cost of transportation and of meals and lodging en route (including the date of arrival) from the taxpayer’s former residence to his new place of residence. The deduction for traveling expenses from the former residence to the new place of residence is allowable for only one trip made by the taxpayer and members of his household; however, it is not necessary that the taxpayer and all members of his household travel together or at the same time.  Expenses of traveling from the taxpayer’s former residence to his new place of residence DO NOT include, for example, living or other expenses following the date of arrival at the new place of residence and while waiting to enter the new residence or waiting for household goods to arrive, expenses in connection with house or apartment hunting, living expenses preceding date of departure for the new place of residence, expenses of trips for purposes of selling property, expenses of trips to the former residence by the taxpayer pending the move by his family to the new place of residence, or any allowance for depreciation.  26 CFR §1.217-2(b)(4).

• Expenses of traveling for the principal purpose of looking for a new residence: These expenses include the cost of transportation and meals and lodging during such travel and while at the general location of the new place of work for the principal purpose of searching for a new residence. However, such expenses DO NOT include, for example, expenses of meals and lodging of the taxpayer and members of his household before departing for the new principal place of work, expenses for trips for purposes of selling property, expenses of trips to the former residence by the taxpayer pending the move by his family to the place of residence, or any allowance for depreciation. 26 CFR §1.217-2(b)(5).

• Expenses of occupying temporary quarters: These expenses ONLY include the cost of meals and lodging while occupying temporary quarters in the general location of the new principal place of work during any period of 30 consecutive days after the taxpayer has obtained employment in such general location. The expenses of occupying temporary quarters do not include, for example, the cost of entertainment, laundry, transportation, or other personal, living family expenses, or expenses of occupying temporary quarters in the general location of the former place of work. 26 CFR §1.217-2(b)(6).

To qualify for deducting moving expenses or excluding reimbursements for moving expenses from gross income, the following conditions must be satisfied:

• “[T]he taxpayer’s new principal place of work is at least 50 miles farther from his former residence than was his former principal place of work, OR if he had no former principal place of work, is at least 50 miles from his former residence.” 26 U.S.C. §217(c)(1).  This is referred to as the “distance test”.

• “[D]uring the 12-month period immediately following his arrival in the general location of his new principal place of work, the taxpayer is a full-time employee, in such general location, during at least 39 weeks, OR during the 24-month period immediately following his arrival in the general location of his new principal place of work, the taxpayer is a full-time employee or performs services as a self-employed individual on a full-time basis, in such general location, during at least 78 weeks, of which not less than 39 weeks are during the 12-month period [described above].” 26 U.S.C. §217(c)(2).  This is referred to as the “time test”.  If the taxpayer cannot satisfy this condition, the moving expenses previously deducted are added back into gross income.  26 U.S.C. §217(d)(3).  This condition does not apply if the taxpayer cannot satisfy such condition by reason of death or disability or involuntary separation from employment (unless it was for willful misconduct).  26 U.S.C. §217(d)(1). 

If the taxpayer was making a foreign move to a new principal place of employment outside of the United States, moving expenses also includes “the reasonable expenses of moving household goods and personal effects to and from storage, and of storing such goods and effects for part or all of the period during which the new place of work continues to be the taxpayer’s principal place of work.” 26 U.S.C. §217(h)(1). 

In the case of a member of the Armed Forces of the United States on active duty who moves pursuant to a military order and incident to a permanent change of station:

• The limitations regarding the “distance test” and the “time test” do not apply. 26 U.S.C. §217(g)(1).

• A permanent change of station includes:

• • A move from your home to your first post of active duty. 26 CFR §1.217-(g)(3)(i).
  • A move from one permanent post of duty to another permanent post of duty. 26 CFR §1.217-(g)(3)(iii).
  • A move from your last post of duty to your home or to a nearer point in the United States. The move must occur within 1 year of ending your active duty or within the period allowed under the Joint Travel Regulations. 26 CFR §1.217-(g)(3)(ii).

• “[A]ny moving and storage expenses which are furnished in kind (or for which reimbursement or an allowance is provided, but only to the extent of the expenses paid or incurred) to such member, his spouse, or his dependents, shall not be includible in gross income, and no reporting with respect to such expenses shall be required by the Secretary of Defense or the Secretary of Transportation, as the case may be.” 26 U.S.C. §217(g)(2). 

 

CURRENT RULES FOR MOVING EXPENSES UNDER THE TAX CUTS AND JOBS ACT

Generally, the tax deduction allowed for moving expenses is suspended for any taxable year beginning after December 31, 2017, and before January 1, 2026.  26 U.S.C. §217(k).  In addition, the exclusion of moving expenses reimbursements made by employers from gross income is also suspended for any taxable year beginning after December 31, 2017, and before January 1, 2026.  26 U.S.C. §132(g).  However, these suspensions DO NOT apply to a member of the Armed Forces of the United States on active duty who moves pursuant to a military order and incident to a permanent change of station.

Eligible taxpayers in the Armed Forces that want to claim moving expenses need to file Form 3903 (Moving Expenses) with their individual federal tax returns.  If you filed taxes in an earlier year and were eligible to claim moving expenses but forgot to do so, you can file an amended tax return for up to three prior tax years to claim these missed deductions.  However, Form 3903 cannot be filed if any of the following apply:

• The actual move was in a prior tax year.

• The taxpayer is only claiming storage fees from his or her absence from the United States.

• The moving or storage services were provided by the U.S. government.

• The amount the government paid for your storage fees was already included on your W-2 form.

• The expenses were already reimbursed by an allowance that you did not have to include in your income.

If you have further questions about moving expenses or need assistance filing your current year or prior year federal tax return, then do not hesitate to contact the experienced tax attorneys at Kershaw, Vititoe & Jedinak PLC for assistance today.