Only Job-Related Moves Qualify for Tax Deductions

Few homeowners and renters look forward to the hassles of moving from one home to another. But just as logistical planning can make a move less taxing on the nervous system, so can a little financial planning make a move less taxing on the pocketbook.

The estimated 35 million or so taxpayers who moved in 1988 should review their records and see whether their moving expenses can be deducted on the tax forms they’ll be filling out in the next few months, accountants say.

Meantime, those who plan on changing homes this year should familiarize themselves with Internal Revenue Service guidelines to increase their chances of taking the write-offs on their ’89 tax return.

“You’re not automatically entitled to deduct your moving expenses,” says Hal Berman, president of Berman & Associates, a Los Angeles-based accounting firm.

Moving Expenses

“But even the people who can take the deductions often overlook items that can save them a lot of money.”

Moving expenses can only be deducted if they’re related to the taxpayer’s job. Usually, that involves taking a new job or being transferred by a current employer to a new location.

The distance between the taxpayer’s new job and old home must be at least 35 miles farther than the distance between the old job and old home.

A taxpayer must also work full time for at least 39 of the 52 weeks following the move to claim the deductions. Self-employed people must work full time for 78 weeks in the first two years.

If a couple is married and only one spouse meets this “work-time” test, the couple is still entitled to claim the deductions on their joint tax return, Berman says.

The moving expenses must be incurred within one year from the taxpayer’s starting date on the new job. And there’s one more test: Only reasonable expenses can be deducted.

“If you move and take the shortest route to your new home, your expenses will probably be considered reasonable,” says Martin M. Shenkman, author of “The Total Real Estate Tax Planner” and a New York accountant.

Two Categories

“But if you decide to take the ‘scenic route’ and spend a week at Disneyworld, don’t expect the IRS to let you write the whole thing off.”

Taxpayers who are eligible to deduct their moving expenses must split those costs into two categories: direct costs, which have no dollar-limit on eligible deductions, and indirect costs, which are deductible only up to certain ceilings.

Direct costs are expenses directly related to the move. They include the actual cost of moving household goods, such as payments to a moving company, truck or trailer rentals, and packing and insurance charges.

Storage fees for up to 30 days are also considered direct costs, Shenkman says, as are expenses incurred by a family when traveling from the old home to the new. The only limit on deductions for direct moving costs is that those expenses be reasonable.

The indirect costs category is broader. It includes deductions for the cost of house-hunting trips after the taxpayer is hired, and up to 30 days of temporary living expenses if short-term quarters are needed. The maximum allowable deductions for house-hunting and temporary expenses are a combined $1,500.

Some housing-related transactional expenses are also considered deductible as indirect costs of moving, Shenkman says. For example, a homeowner can deduct certain expenses of selling the old home--such as sales commissions, fix-up charges and related attorney’s fees--as well as legal fees, title-insurance costs, appraisal fees and other items linked to the purchase of the new house.

Deductions for Renters

Renters, meanwhile, can usually deduct costs involved in breaking their old lease, as well as brokerage fees and certain other charges that may result in renting a new place.

The maximum amount of all deductions in the indirect category--house-hunting, temporary expenses and housing-related transactional costs--is $3,000 for joint filers and $1,500 for single filers.

It’s not unusual for indirect expenses to exceed $3,000, especially if the taxpayer paid a realtor a 6% commission to sell the previous home. Shenkman says the excess can be subtracted from the sales price of the old home to reduce any taxable profit, or can be factored into the investment in the new house in order to reduce taxes when the new home is eventually sold.

Of course, each individual’s tax situation is different, and tax-code technicalities prevent many people from using the deductions. IRS Publication 521, “Moving Expenses,” provides more information about who qualifies for the write-offs and how they are calculated.

The deductions themselves must be taken on Form 3903. Taxpayers must report any reimbursements of moving expenses paid by their employers, and employers themselves report those reimbursements to the IRS.