8746 / When is a taxpayer entitled to deduct moving expenses?

Editor’s Note: The 2017 tax reform legislation suspended the ability of taxpayers to deduct moving expenses under IRC Section 217 for 2018-2025. Although the Section 132 employer deduction for moving expenses is also suspended from 2018 through 2025, an exception exists for members of the armed forces (and their spouses and dependents) who are on active duty.¹ The rules discussed below generally apply for tax years beginning prior to 2018.

For tax years prior to 2018, if certain conditions are met, a taxpayer may deduct reasonable moving expenses incurred in connection with beginning work at a new principal place of business, whether as an employee or self-employed person.² The following general requirements apply:

(1)  The taxpayer must have incurred moving expenses;

(2)  Those moving expenses must be related to the taxpayer’s start of work at a new principal place of work;

(3)  The taxpayer’s new principal place of work must be at least 50 miles further from his principal residence than his former principal place of work or, if the taxpayer had no former principal place of work, at least 50 miles from his former residence;³ and

(4)  The taxpayer must work in the general location of the new principal place of work for a specified period. Specifically, this means that the taxpayer is either:

a. a full-time employee in the general location of the new principal place of work for at least 39 weeks during the 12-month period following his or her arrival or,

b. in the 24-month period following arrival, a full-time employee or self-employed individual (on a full-time basis) in the general location of the new principal place of work during at least 78 weeks (39 weeks must be in the first 12-month period). See Q 8722 and Q 8723 for a discussion of when a taxpayer is considered to be self-employed.⁴

For moving expenses that meet the requirements above to be “qualified,” and thus deductible, they must relate to the expenses described below (the distinction also becomes important for determining whether the employee must include the costs of any employer-reimbursement in gross income, see Q 8747). “Qualified moving expenses” are:

(1)  the costs incurred to move the taxpayer’s household items from the first location to the second location; and

(2)  the travel expenses (excluding meals, but including lodging) incurred by the taxpayer in travelling from the first location to the second location.⁵

The expenses described in (1), above, may include costs such as those related to packing, disconnecting and connecting utilities, and in-transit storage and insurance if incurred in the
30 day period after moving the goods from the taxpayer’s former residence. The IRS specifically excludes costs such as losses sustained upon ending membership in clubs, wasted tuition fees, costs incurred in buying property or losses sustained upon selling property because of the move.⁶

Travel expenses described in (2), above, must be reasonable based on the facts and circumstances of the particular situation. Though the route travelled must usually be the shortest and most direct route, the taxpayer does not lose the deduction if the taxpayer incurs expenses that increase the cost of the move and are personal in nature. Instead, the deduction is reduced by the additional costs incurred for personal reasons.⁷ The deduction is further reduced by any expenses deemed to be lavish or extravagant under the circumstances.

Example: Jeff is moving from Michigan to California for business reasons. He intends to drive but, rather than directly making the trip, he decides to stop and visit friends in St. Louis and Las Vegas along the way. Jeff is entitled to deduct the cost of moving from Michigan to California, minus any additional costs he incurs while visiting friends in other cities for personal reasons.

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Planning Point: Travel expenses from the former to the new residence are deductible for one trip only. The trip must be made by the taxpayer and members of the taxpayer’s household. It is not necessary, however, that the taxpayer and all household members travel together or at the same time.⁸ The cost of traveling from a former home to a new one should be by the shortest, most direct route available using conventional transportation.⁹

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A taxpayer is also entitled to deduct the moving expenses of other members of his household, provided that the household member’s principal place of residence was both at the first location and at the second location.¹⁰

Generally, moving expenses are treated as “above the line” deductions; thus, if allowable, such expenses are deductible directly from gross income.¹¹