Moving Expenses: What Counts and is it Deductible?

Whether you’re considering or have already accepted a relocation assignment, you’ve certainly wondered what costs you’d accrue during your move – and which of those qualify as tax write-offs. 

Relocating can be an exciting, fresh start – new sights, new people, new digs, a new you. Unfortunately, even the best opportunities sometimes come at a cost, and accepting an assignment that requires relocation can be expensive. 

Whether you’re planning to move or recently relocated, figuring out the deductibility status of all the expenses you picked up along the way can be complicated. 

What counts as a relocation moving expense? 

Relocation moving expenses refer to costs incurred when you move to a new home because of your job. These expenses must be considered as necessary to your move.

For the IRS to consider your moving expenses deductible, your move must check these three items:

• Your move must be directly associated with relocating for work or a new job.
• Your new workplace must pass the “distance test”; the distance from your old home to your new place of business must be, at minimum, 50 miles farther than the distance from your old home to your old place of business.
• You must work full-time for 39 weeks in the 12 months following the move.

Can I deduct moving expenses?

Yes and no. The Tax Cuts and Jobs Act of 2017 (TCJA) made a legislative overhaul that affected taxpayers’ ability to deduct moving expenses on their federal income tax. As of 2022, only active military personnel can claim moving expense deductions on their federal return.

The TCJA also affected the eligibility of moving expense deduction at the state income level. Most states updated their tax legislation to match the TCJA amendments, meaning moving expenses are no longer considered as write-offs. However, as of February 2022, seven states still allow a moving tax deduction from state income. These states include:

• Arkansas
• California
• Hawaii
• Massachusetts
• New Jersey
• New York
• Pennsylvania

What relocation expenses are deductible from state income?

If you’re active-duty military personnel or live in one of the seven states listed above, the following relocation expenses are potentially deductible from your state income:

Cost of transporting household goods and personal effects, including:

• Shipping household and personal items, including insurance coverage, packing, crating, and disconnecting/reconnecting your utilities and appliances.
• Storage and insurance expenses (within any period of 30 consecutive days after your possessions are moved and before they’re delivered to your new home).
• Transporting vehicles, boats, and household pets.
• Packing supplies, such as boxes, tape, bubble wrap, disposable pet carriers, etc.
• Tips and gratuity for movers.
• Rental van expenses, including gas, oil, tolls, and parking fees.
• Transportation of goods from a place other than your former home (limited to the amount it would cost to move those goods from your home).

Cost of traveling to your new home, including:

• Cost of one-way transportation to your new residence.

(Transportation may include airfare, train, driving, or travel by other conventional means. Your trip should be the shortest, most direct route available and any additional expenses for stopovers during your relocation move are not deductible).

• Cost of one-way transportation (as defined and within the limits listed above) for your household members. 
• Expenses for the day you arrive, including lodging. 
• Car costs (for your personal car) at the standard mileage rate. (If your company reimburses you with a mileage allowance that exceeds standard mileage rates, the excess is taxable as wages).
• Gas and oil costs, if chosen in lieu of the standard mileage rate.
• Parking fees and tolls

It’s advisable to keep all receipts for any transaction made during your relocation for your records, even if you’re uncertain about their deductibility status at the time. Remember to be mindful when completing state deduction forms so that no “double deductions” are taken by mistake!

What expenses are not deductible from state income?  

Unfortunately, not all of your accrued moving costs will be deductible. Ideally, your company’s mobility policy will offset these non-deductible expenses with reimbursement or a lump-sum payment. It’s essential to consider this when deliberating on whether or not you’ll accept a relocation assignment. 

Examples of nondeductible income tax items include: 

• Meal expenses (except in NJ and PA). 
• Pre-move house-hunting costs and return trips home.
• Temporary living expenses, such as rent.
• Penalties, such as a lease-breaking fee or lost security deposits. 
• New state document fees, such as car tags or driver’s licenses.
• Physical examinations required for children entering new schools.
• Spousal employment assistance
• Income tax assistance 
• General car repairs and maintenance, driver’s insurance, or car value depreciation.
• Expenses of buying or selling a home (except for loan origination fees, which are only deductible by the owner as interest on Schedule A).

What relocation expenses are deductible from federal income?

You’ve combed through the receipts you dutifully collected during your move, and you’ve selected the ones acceptable for state filing – but what about any leftovers? Some relocation expenses won’t be considered deductible at a state or local level but might be eligible for federal deductions. 

Moving expenses that may be federally eligible for Schedule A deductions include:

• Points (loan origination fees)
• Duplicate carrying charges (mortgage interest), when incurred on a primary residence or second home
• Real estate taxes
• Mortgage prepayment penalties

Still unsure if a moving expense is deductible? 

Suppose you’re still uncertain about whether or not you’re able to write off an expense. In that case, the IRS website offers an interactive moving assistance tool to help you determine the deductibility status.

Though the Internet is full of informative tax-knowledge resources, the easiest way to get the most from your tax return is by enlisting the support of a tax professional. Here at Ineo, we’re ready to help by offering expert tax guidance and comprehensive global mobility tax services.

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