Moving Expenses Deduction

Section 217 allows eligible taxpayers to deduct qualified moving expenses when relocating for work. The availability of this deduction has been limited for most taxpayers since the Tax Cuts and Jobs Act of 2017. This guide explains who qualifies, deductible expenses, and required conditions.

What is the Moving Expenses Deduction?

The moving expenses deduction allows eligible taxpayers to deduct certain costs incurred when moving for a new job, including transportation of household goods and travel expenses. The availability of this deduction has been limited for most taxpayers since the Tax Cuts and Jobs Act of 2017.

Key Features of Section 217

1. Deduction for Qualified Moving Expenses: Taxpayers can deduct reasonable moving expenses incurred when starting a job at a new principal location.
2. Limitations Post-2017: After the 2017 tax year, this deduction is primarily available only to members of the Armed Forces on active duty who are moving due to a military order.
3. Definition of Moving Expenses: The definition includes costs for moving personal belongings and travel expenses, but explicitly excludes meals.
4. Eligibility Criteria: There are specific conditions that taxpayers must meet to qualify for this deduction.

Who Can Claim the Moving Expenses Deduction?

1. Employees and Self-Employed Individuals

Under IRC Section 217, the deduction is available to:

• Employees who move due to a new job.
• Self-employed individuals starting a new business at a different location.

2. Members of the Armed Forces

Active-duty members of the military have specific provisions under Section 217 that allow them to claim moving expenses, regardless of the limitations imposed on other taxpayers.

3. Individuals Who Qualify

To qualify for the moving expenses deduction, taxpayers must meet certain criteria:

a. Distance Test

• The new principal place of work must be at least 50 miles farther from the taxpayer's previous home than their former principal place of work.
• If the taxpayer did not have a previous job location, the new work location must be at least 50 miles from their former home.

b. Time Test

Taxpayers must also meet one of the following conditions regarding their employment:

• Full-Time Employee: Be a full-time employee in the new location for at least 39 weeks during the 12-month period following the move.
• Self-Employment: Be self-employed or work full-time at the new location for 78 weeks, including at least 39 weeks within the first 12 months.

4. Exceptions to the Rules

There are exceptions where the time test may not apply:

• If the taxpayer is unable to meet the conditions due to death or disability.
• If they are involuntarily separated from their job after starting full-time employment.

What Expenses Can Be Deducted?

1. Qualified Moving Expenses

According to Section 217, deductible moving expenses include:

• Moving Household Goods: Reasonable costs associated with moving your personal belongings from your old residence to your new one.
• Travel Expenses: Costs for traveling from your former residence to the new one, including lodging. However, expenses for meals are not deductible.

2. Additional Considerations for Military Personnel

For active-duty service members moving due to military orders, the deduction rules are more flexible:

• They do not need to meet the distance and time tests.
• Moving and storage expenses provided in kind or through reimbursement are not included in taxable income.

Special Provisions for International Moves

For those moving overseas, Section 217 includes additional rules:

• Storage Fees: Costs for storing household goods before and after the move can be deductible.
• Foreign Moves: If the new job is located outside of the United States, specific rules apply regarding what constitutes moving expenses.

Practical Examples of Deductible Moving Expenses

To clarify how the moving expenses deduction works, let’s look at a few practical examples.

Example 1: Employee Relocating for a New Job

Sarah is an employee who has accepted a job offer in a city 70 miles away from her previous home. She incurs the following expenses:

• Moving her furniture and belongings: $2,000
• Travel costs to drive to her new home (including gas and lodging): $400

In this case, Sarah can claim a deduction for her moving expenses totaling $2,400 since she meets the distance and time tests.

Example 2: Self-Employed Individual

John, a freelance graphic designer, moves to a new city to expand his business. He spends:

• Hiring a moving company: $1,500
• Travel expenses for himself and his family to the new home: $600

If John works full-time in his new location for at least 39 weeks within the next year, he can deduct a total of $2,100 for his moving expenses.

Example 3: Military Service Member

Emily is a member of the Armed Forces and receives orders to move to a new base. She incurs the following costs:

• Moving and storage: $1,200
• Reimbursement for moving expenses provided by the military: $1,500

Under the rules for service members, Emily does not need to report the reimbursed moving expenses as income, and she can still deduct the out-of-pocket cost of $1,200.

Filing for the Moving Expenses Deduction

If you are eligible to claim the moving expenses deduction, here’s how you can go about it:

1. Keep Detailed Records: Maintain receipts and documentation for all moving expenses. This will be crucial when you file your tax return.

2. Complete the Appropriate Tax Forms: While the specific form may vary depending on your tax situation, typically, moving expenses are reported on Schedule A if you itemize deductions, or you may use Form 3903 if you are a member of the Armed Forces.

3. Consult IRS Guidelines: Always refer to the latest IRS guidelines or consult a tax professional to ensure you are applying the deduction correctly and staying compliant with current tax laws.

Conclusion

The moving expenses deduction under IRC Section 217 can provide significant financial relief for individuals who relocate for work. However, the eligibility criteria and the types of expenses that can be deducted have become more restrictive since 2017, mainly impacting non-military taxpayers. Understanding these nuances is crucial to ensuring you maximize your deductions and comply with tax regulations.

If you’re considering a move for employment, take the time to familiarize yourself with these rules, keep thorough records of your expenses, and consult with a tax professional to navigate your specific situation. This will help you make informed decisions and ensure you benefit from any potential tax breaks available to you.