Are you looking at moving costs in US but confused about how to account for all of it? At Three Men and A Truck, we answer lots of questions for our prospective clients, the most popular of which is “How much will it cost me?” Then there are those questions that may be beyond our expertise such as “Are moving costs tax deductible?” While this is a question that is best answered by the IRS, we can tell you that, where federal income tax is concerned, most Americans can no longer deduct these expenses. Let’s look at this issue in more detail.
Why aren’t moving expenses tax deductible?
Prior to the passage of the TCJA or Tax Cuts and Jobs Act of 2017, eligible moving expenses could be deducted from your gross income, which meant that you didn’t have to itemize them on your return. You could recoup relocation costs that pertained to your job and be allowed to take the standard deduction as well. You could also deduct them if you were moving to find a new job.
However, moving expense deductions were suspended starting in the 2018 tax year and continuing until the 2025 tax year. The only exception was active military and their spouses and/or dependents. There are a handful of state governments that allow you to deduct your moving expenses on their state income tax return (see below). Additionally, you might want to talk with your accountant to know more.
When moving costs tax deductible?
We did some research into this since we are asked this question more often than you would think. According to the IRS, moving expenses are tax deductible only if you are active military. Furthermore, the move must be related to a permanent change of duty station. However, as far as taxpayers that are not serving in the military, moving expenses that your employer reimbursed you for were included in your gross income unless it was provided by the Federal Government for a permanent relocation. This used to be excluded from a taxpayer’s gross income.
Are my moving expenses tax deductible if I relocate my business?
As a company owner, moving expenses include the costs of moving your business and your personal moving costs involved with relocating the business. These costs include moving business equipment, inventory, and supplies as well as costs associated with the lease or purchase of the new location.
Can I deduct my moving expenses if I’m promoted to or transferred to a new location by my employer?
As an employee of a company, your employer will probably handle your moving costs in one of three ways. Despite wanting your employer to cover as much as possible, don’t go overboard with these expenses. They either pay your expenses, provide a moving allowance, or reimburse you for what they consider to be “reasonable” moving expenses. Your employer may cover the costs involved with taking a trip to find a new home in your new location as well.
What does the IRS consider to be “reasonable” moving expenses?
There’s a good chance your employer knows that for a moving allowance or reimbursed moving expenses not to be viewed as income by the IRS, and therefore taxed as income, that you have to be able to deduct them. They have to meet the IRS definition of “reasonable moving expenses” which include:
- crating, packing, and transporting costs of their household goods including their vehicles and their pets
- lodging for a single night if the employee cannot stay in the home another day
- transportation costs for the employee and his or her family to their new home
- utility disconnection and connection costs in their new location
If your employer reimburses you for meals, more than a single night’s lodging, and the trip to locate a new home, you will be taxed on the amounts that are non-deductible or non-qualified. Furthermore, if they reimburse you for a higher mileage rate than what the IRS allows, you’ll owe taxes on the overage that your employer paid you. When you receive your W-2, it will include your non-qualified and qualified moving expenses.
On a closing note, there are currently 11 states that have not conformed to the Tax Cuts and Jobs Act. This includes:
- New Jersey
- New York
While we appreciate all visitors at the Three Men and A Truck and welcome all questions, we recommend that you discuss the above matters with a licensed IRS agent or representative for the most accurate information. And if you are looking for other information about moving and related costs, call us today. We’d be glad to be of assistance. Contact us now!