Moving Expenses

If you move your business to another location (e.g., you relocate your offices to larger quarters) or you move equipment to another location (e.g., you move machinery from 1 plant to another), your moving costs are deductible. There is no requirement that your new location be any special distance from the old one.

In general, if you personally move from 1 home to another, you cannot deduct the cost of moving your furnishings and family because these are personal expenses. However, if you relocate because of a change in jobs or a new business, you may be able to deduct your moving expenses. The tax law allows a personal deduction for moving expenses for certain job-related moves.

To claim deductible moving expenses, you must show 3 things:

Distance Test

The distance between your new job or business location and your former home must be at least 50 miles more than the distance between your old job or business location and your former home. If you move to another city or state, generally you have no difficulty in satisfying the distance test. Where you simply move across town, be sure that the move is of a sufficient distance to make your expenses deductible.

In calculating the distance test, use the most commonly traveled routes between locations. You need not measure distance “as the crow flies.”

What if you have been out of work a long time or you are changing from part-time to full-time employment? In this case, the new job location must be at least 50 miles from your former home.

Usually the distance between your new home and job locations is not considered. However, if the distance between your new home and new job location is more than the distance between your old home and new job location, you may not be able to deduct your moving expenses. The only way to deduct moving expenses in this situation is to show that you are required to live in your new home as a condition of employment or the move results in an actual decrease in commuting time or expense.

Work in Your New Location (Time Test)

If you are an employee, you must remain on the job at your new location for at least 39 weeks during the 12-month period that starts with your arrival at the new location. You need not stay with the same employer for all those weeks. You can get another job in the same location and deduct moving expenses as long as the total employment time is at least 39 weeks. In general, only full-time employment is used to satisfy the 39-week requirement, although there is a special rule for certain seasonal employment.

If you are laid off or fired from your employment without any willful misconduct on your part, the 39-week test is waived. The time test is also waived if you fail to meet the 39-week requirement because of circumstances beyond your control—strikes, temporary absences, illness, natural disasters, and such. The time is waived if you are transferred from your new job to another location for your employer’s benefit. According to the IRS, this waiver does not apply if you request a transfer for your benefit. The waiver does not apply if you resign, are fired for willful misconduct, or reach the mandatory retirement age of your new employment where you anticipated this retirement.

If you are self-employed or a partner or an LLC member, there is a 78-week test. You must work full-time in your business for 78 weeks in a 24-month period beginning with the move to the new location. At least 39 weeks must occur within the first 12 months of arrival.

You need not wait out the time requirements before claiming the deduction for moving expenses. You can deduct your costs in the year of the move under the assumption that you will meet the time test. If you do not (e.g., if you move again before the end of the 39 or 78 weeks), then you must report your deduction as income in the subsequent year. Alternatively, you can amend the earlier return to delete the deduction for moving expenses.

If you are not sure whether you will meet the time test, you can file your return for the year of the move without the deduction and then amend it after the time test has been satisfied.

Change in Employment Status

If you change your employment status to that of an employee (e.g., if you shut down your business and find a job in your new location), you need only meet the 39-week test. If you change your employment status from employee to self-employed person before satisfying the 39-week test, you must meet the 78-week test to deduct moving expenses.

Deductible Moving Expenses

Only certain moving expenses are deductible. You may deduct the actual cost of moving your household goods and personal effects. What constitutes a personal effect has been rather liberally interpreted. For example, 1 taxpayer was able to deduct moving costs for a sailboat. The cost of packing, crating, and transporting furniture, the related insurance, and some storage costs are examples of deductible expenses.

You can also deduct the travel costs for you and members of your household. You need not all travel together. For example, you may relocate immediately and your family may follow when your old home is sold or when the school year ends. Keep track of all transportation expenses for you and members of your household.

Travel costs include transportation and lodging to get from your old home to your new one. If you travel by your car, you can use a standard mileage allowance in 2012 of 23 per mile, plus tolls and parking. (You cannot deduct your mileage at the business mileage rate even though the move is business-motivated.) Alternatively, you can deduct your actual expenses for gas, oil, and repairs on the trip, plus tolls and parking. You cannot deduct the cost of meals on the trip from your old home to your new home.

If your employer pays your moving expenses or you receive reimbursement from your employer, you cannot deduct your costs. Your employer will not include the reimbursements in your income if the employer believes that you would have been entitled to a deduction had you not received reimbursement.

As an employer, if you pay employee moving expenses, you may deduct the costs even though they are not taxable to the employee.