The Moving Expense Deduction: What You Need to Know
Moving is often a stressful and expensive endeavor, whether it’s for a new job, transferring for work, or simply relocating to a new home. Fortunately, the U.S. tax system has, in the past, provided some relief for taxpayers through the moving expense deduction. However, the landscape of these deductions has changed considerably in recent years due to tax reform, with the 2017 Tax Cuts and Jobs Act (TCJA) affecting who can claim these expenses.
This article provides an in-depth look at the moving expense deduction as it stands in 2024, covering eligibility, the impact of the TCJA, and how those who qualify can benefit from it.
Overview of the Moving Expense Deduction
The moving expense deduction is a tax break that allows taxpayers to deduct certain costs incurred during a move, provided that the move is closely related to starting a new job or business location. In the past, many taxpayers could claim this deduction, but recent changes in tax law have significantly narrowed eligibility.
Key Highlights:
- Prior to 2018, most taxpayers could deduct moving expenses for a job-related relocation.
- The TCJA suspended this deduction for most taxpayers from 2018 through 2025.
- Currently, only active-duty military members who move due to a permanent change of station (PCS) can claim this deduction.
For those who are eligible, understanding what expenses are deductible, how to claim them, and the documentation required is essential for reducing the financial burden of relocating.
The Impact of the Tax Cuts and Jobs Act (TCJA)
Before the passage of the TCJA, the moving expense deduction was available to many individuals and families who relocated for work. However, starting in 2018, the TCJA eliminated this deduction for most taxpayers. The law suspended the moving expense deduction for tax years 2018 through 2025, with a notable exception for active-duty military personnel who meet specific criteria.
Changes Implemented by the TCJA
The TCJA’s suspension of the moving expense deduction had a broad impact on taxpayers. Under pre-TCJA rules, taxpayers could deduct eligible moving expenses if their relocation was closely related to starting a new job and met specific distance and time requirements.
Post-TCJA, the deduction was eliminated for all but a small subset of taxpayers: active-duty military personnel moving due to a permanent change of station. This exclusion left a significant portion of taxpayers unable to claim deductions for their moving expenses.
Military Exemption
Active-duty military members who are relocating due to a permanent change of station (PCS) remain eligible to deduct their moving expenses under the TCJA. A permanent change of station includes moves from one permanent post to another, moves from home to the first post of duty, or from the last post of duty back to a final home.
Eligible military personnel can still deduct the cost of moving themselves, their family members, and their personal belongings to their new location. For this subset of taxpayers, the moving expense deduction can help alleviate some of the financial strain associated with frequent relocations that are part of military life.
Eligibility Requirements for the Moving Expense Deduction
For military members eligible for the moving expense deduction, there are specific rules and criteria that must be met. Understanding these requirements is critical for successfully claiming the deduction.
Who Is Eligible?
As previously mentioned, the moving expense deduction is currently only available to active-duty military personnel who are moving due to a permanent change of station. This includes:
- Moves from one permanent post to another.
- Moves from home to a first active-duty post.
- Moves from a final active-duty post to a home upon leaving the military.
Spouses and dependents of the active-duty service member are also covered under these rules, meaning their moving expenses are deductible as well.
Qualifying Expenses
The IRS allows certain moving-related costs to be deducted, provided that the expenses are both reasonable and necessary. These costs include:
- Transportation and Storage of Household Goods: Costs associated with transporting household goods and personal effects from one home to another are deductible. This includes the cost of renting a moving truck, paying professional movers, and the expense of storing goods for up to 30 days.
- Travel Costs: The cost of traveling from the old home to the new one is deductible, but there are some limitations. Only one trip per person is allowed, and the costs must be reasonable. You can deduct the cost of transportation (including vehicle costs) and lodging, but not meals.
- Utility Connection/Disconnection Fees: Fees related to disconnecting and reconnecting utilities due to the move can be included as deductible moving expenses.
It’s important to note that any expenses that are reimbursed by an employer or the government cannot also be deducted.
Non-Deductible Expenses
Not all moving-related costs are eligible for deduction. Non-deductible expenses include:
- Costs associated with selling or buying a home.
- Temporary housing or meals during the move.
- Real estate commissions, closing costs, or lease-breaking fees.
- Costs for returning to the old location after the move has been completed.
These expenses, while related to the relocation process, are considered personal and not directly deductible as moving expenses.
How to Claim the Moving Expense Deduction
Claiming the moving expense deduction as an eligible military member requires attention to detail and the appropriate documentation. The IRS provides a form specifically for this purpose.
Filing IRS Form 3903
To claim the moving expense deduction, eligible military personnel must file IRS Form 3903 (Moving Expenses) with their federal income tax return. This form helps the IRS track and process moving-related expenses. On this form, taxpayers must provide:
- The total expenses incurred.
- Any reimbursements received for moving expenses.
Once the total amount of eligible moving expenses is calculated, the deductible portion is entered on the taxpayer’s Form 1040 as an adjustment to income.
Documentation and Record-Keeping
As with any tax deduction, maintaining accurate records is essential. Taxpayers should keep receipts and records of all moving-related expenses, including transportation, storage, and travel costs. If expenses were reimbursed, documentation showing the amount and source of reimbursement should also be kept. In the event of an IRS audit, these records will be necessary to substantiate the deduction.
State-Level Moving Expense Deductions
While the federal moving expense deduction has been largely suspended for most taxpayers, some states still offer their own moving expense deductions. States that do not conform to federal tax law or that have not adopted the provisions of the TCJA may allow taxpayers to deduct moving expenses on their state tax returns.
For example, in certain states, such as California and New York, taxpayers may still be able to deduct moving expenses on their state income tax return even though the federal deduction is unavailable. It’s crucial to review state tax rules to determine if this applies.
Planning for Future Changes
The suspension of the moving expense deduction under the TCJA is currently set to last through 2025. However, future changes to tax law could affect whether the deduction becomes available to all taxpayers again.
In anticipation of future tax reforms, it is essential for taxpayers to stay informed about changes to tax laws, particularly those that impact deductions for moving expenses. Consulting with a tax professional or keeping an eye on IRS publications can provide clarity on any upcoming modifications to the moving expense deduction.
Alternatives to the Moving Expense Deduction
Since the moving expense deduction is no longer available to most taxpayers, those who are not active-duty military personnel must find alternative ways to offset the financial burden of moving. Some potential options include:
- Employer Reimbursement: Many employers offer reimbursement for moving expenses as part of a relocation package. These reimbursements are taxable as income, but they can still help reduce out-of-pocket costs.
- Deducting Work-Related Expenses: For self-employed individuals, some work-related moving costs may still be deductible as business expenses. For example, moving a home office or business equipment to a new location may qualify as a deductible expense under business tax rules.
- State Tax Deductions: As mentioned earlier, some states may still allow taxpayers to claim a deduction for moving expenses on their state income tax returns, even if the federal deduction is unavailable.
Conclusion
The moving expense deduction, once a common tax break for individuals and families relocating for work, has been significantly limited by the Tax Cuts and Jobs Act. In 2024, only active-duty military personnel relocating due to a permanent change of station are eligible to claim this deduction. For these taxpayers, understanding what expenses qualify and how to properly claim the deduction can help reduce the financial burden of moving.
While the deduction is currently suspended for most taxpayers, staying informed about potential changes to tax law is essential. By keeping records of moving expenses and consulting with a tax professional, eligible taxpayers can ensure they take full advantage of available deductions and reduce the cost of relocation. As tax laws evolve, the future of the moving expense deduction remains uncertain, but it remains a valuable tool for those who qualify under current regulations.