Can You Claim a Tax Deduction for Moving Expenses when You Retire?

Generally, moving expenses are tax deductible if they are related to your job or business. According to the IRS, to be deductible the moving expenses must have been incurred in connection with starting work at a new job location. But this does not mean that the work has to be in your same line of business, and working for yourself would also qualify. So, whether your moving expenses to a retirement location are deductible depends on what you intend to do there.

One possibility, if you are married filing jointly, is a staggered retirement in which one of you retires and the other continues to work full time, at least long enough to meet the requirement for claiming a moving expense deduction. The requirement is that you must work full time for at least 39 weeks during the first 12 months after you arrive in your new job location.

If you plan to work for yourself or start a business in the area where you decide to live, the time test is that you must work full time for at least 39 weeks during the first 12 months and a total of at least 78 weeks during the first 24 months after you arrive at your new location. According to the IRS, whether you work full time depends on what is considered full time in your line of work and your area.

Another possibility could be a job-related move in anticipation of your retirement, depending on the company you work for and where the company has operations. If you were to arrange for a transfer to a work location in the general area where you want to retire and you work there for at least the required time period after you move, your moving expenses would be deductible. This obviously would not be a tax consideration if your employer reimburses you for the moving expenses.

If you plan to retire outside the U.S., your moving expenses would also only be deductible if you work in your new location. But in that case, you may qualify for the foreign earned income exclusion. The portion of your moving expenses that is allocable to the income you can exclude (up to $92,900 for 2011) would not be deductible.

The IRS points out special cases for people moving back to the United States or its possessions to retire after working abroad. If your former main job location and your former home were outside the U.S. and you are returning to the U.S. to permanently retire, your moving expenses are deductible.

If you are the surviving spouse or dependent of a decedent whose main job location was outside the U.S. at the time of death, you can deduct your moving expenses if you lived with the decedent outside the U.S., and your move to the U.S. starts within 6 months after the person's death.

The advantage of the moving expenses deduction is that it directly reduces your income subject to tax. The deduction is an adjustment to income and you don't have to itemize to claim it. Deductible moving expenses include the cost of moving your household goods and personal effects and travel expenses to your new home, including lodging but not meals. The deduction for moving expenses is claimed on Form 3903.

Sources:
Form 3903 - Moving Expenses - IRS
Moving Expenses to and from the United States - IRS
Publication 521 - Moving Expenses - IRS
Writing Off Moving Expenses - Smart Money