Are you one of the more than 20 million renters and homeowners who changed residences in 2003? If you did, your moving costs may be tax deductible.
To qualify, however, you also must have changed your job location. However, it doesn’t matter if you changed employers, stayed with the same employer, or became self-employed.
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Even if you don’t itemize your personal tax deductions, your moving costs might produce a deduction saving you hundreds, or even thousands, of tax dollars. The reason is the moving cost tax deduction is an “adjustment” subtraction from your gross taxable income rather than an itemized deduction.
DID YOUR JOB LOCATION CHANGE IN 2003? The first and most important moving cost job location change test requires your new job site to be at least 50 miles further from your old home than was your old job location. But the distance from your new job location to your new residence doesn’t matter.
To illustrate, suppose the drive from your old home to your old job location was five miles. To be eligible for the residence moving cost tax deduction, your new job site must be at least 55 miles (five plus 50) in this example from your old home.
THE SECOND TEST INVOLVES WORK TIME. If you passed the first job location distance test, the second (and last) eligibility test requires you to work a specified number of weeks in the vicinity of your new job location. But you can change jobs, location and employer.
Employees must work full-time (not necessarily with the same employer) in the vicinity of their new job location for at least 39 weeks during the 52 weeks after their residence move. However, part-time employment doesn’t count. Neither does time spent searching for a job.
Either spouse can meet this test. The obvious purpose of this test is to prevent frequent tax-deductible moves, such as moving to sunny Florida or Arizona in the winter and cool Alaska or Michigan in the summer.
But the test for self-employed persons is tougher. They must work at least 78 weeks full-time in the vicinity of their new job location during the 104 weeks after their residence move.
This test prevents self-employed students and hobbyists from deducting their moving costs although they work just a few hours each week. However, these work-time tests are waived for disability, job layoffs, and the taxpayer’s death.
WHAT HAPPENS IF YOU DON’T MEET THE WORK TIME TEST BY APRIL 15, 2004? If you don’t meet the 39-week or 78-week work time test before your 2003 income tax return is due on April 15, 2004, but you met the 50-mile additional job distance test, you then have a choice.
You can either claim the moving cost deduction on your 2003 income tax returns although you have not yet met the job time test, or you can wait and later amend your 2003 tax returns when you meet the job time test. To avoid forgetting this important tax deduction, most tax advisers suggest taking the deduction and then amending the tax returns if the time test is not met.
INDIRECT MOVING COSTS ARE NOT DEDUCTIBLE. If a moving expense was not a direct cost of the residence move, it is not deductible. Examples of non-deductible indirect moving costs include pre-move inspection trip air fares, meals and lodging.
Indirect costs for moving your chauffeur, nurse, butler, cook and maid are also nondeductible. More examples of nondeductible indirect moving costs include a loss on the sale of your house, and residence sales or leasing commissions.
DIRECT MOVING COSTS ARE DEDUCTIBLE WITHOUT LIMIT. But direct moving costs are deductible without limit. If you drive from your old to new residence, you can deduct either 12 cents per mile, or your actual out-of-pocket expenses, such as gasoline and oil, but not repairs and depreciation. In addition, parking and tolls are deductible.
Don’t forget to deduct your entire direct household moving costs, such as the cost of hiring a moving van. Direct expenses for shipping your pets, in-transit storage costs up to 30 days, insurance, and costs of moving your “personal effects” such as your horses, recreational vehicle, and yacht are also deductible.
HOW EMPLOYER REIMBURSEMENTS AFFECT MOVING COST DEDUCTIONS. If your employer reimbursed your moving cost bills, you have neither moving cost deductions nor additional taxable income. However, if your actual direct moving costs exceeding the reimbursement, the excess moving costs are tax deductible.
If your employer reimbursed you a flat fee that exceeds your direct moving costs, the excess is taxable income to you. Or, if your employer reimbursed you for indirect moving costs, such as non-deductible house hunting trips or for a loss on the sale of your house, that excess payment is taxable income to you.
Special rules apply to members of the armed forces. Gross income generally does not include moving and storage reimbursements or allowances for permanent change of duty station, and for expenses incurred by spouses and dependents. But reimbursements that exceed actual direct moving expenses are taxable to the service member. For more details, please consult your tax adviser.
Next week: Maximize your vacation or second home deductions.
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