Tax - Who Can Claim Moving Expense Deduction?

Moving expense deduction is allowed only if the move to the new place was necessitated by a new job you got.

To be eligible for moving expense deduction, a taxpayer should be EITHER

1. an employee
OR,
2. self-employed
OR,
3. both.

If you belong to any of these categories, next you will have to satisfy the Distance and Time requirements.

The law requires that such a move should be closely related, both
- in place to the start of work at a new or changed job location
AND
- in time to the start of work at a new or changed job location

Closely related in place...

You are required to live in your new home. Ideally, the distance from your new home to the new job location is not more than the distance from your former home to the new job location.
Otherwise, you may have to prove that:
• You are required to live at your new home as a condition of your employment
• You will save time or money commuting from your new home to your new job location.

Closely related in time...

Only moving expenses incurred within one year from the date you first reported to work at the new location are considered as closely related in time to the start of work.

This does not mean that you cannot move to a new place in search of work. What is important is that you did get a new job in the new location and did go to work. The move should be within the one-year period from the date of joining the new job.

If you do not move within one year, you will have to prove that circumstances existed beyond your control that prevented you from moving within that period.

Once you fulfill those requirements for proving your move was job-related, next you have to pass more definitive tests for distance and for full time working hours.

The Distance Test

Though the whole event is triggered by your moving to a new home, the Distance Test does not take into account the location of your new home.
This test considers only the location of your FORMER home.

If you were unemployed for long period and got a new job, your new job should be at least 50 miles from your former home. This rule also applies if it is your first job.
OR,
If you were already employed, your new job should be at least 50 miles FARTHER from your former home than your old job was from your former home.

Did you notice the word used by the law in this second instance is "FARTHER" and not FAR?

That means your new job should now be at least 50 miles MORE distant from your former home
than the distance between the your old job and your former home.

Example:

BEFORE
The distance between your old job and your former home was 5 miles.
NOW
The distance between your NEW job and the same FORMER home should be at least 5+50 = 55 miles to be eligible for deducting moving expenses for tax purposes.

Again, your new home does not come into the calculation at all.
And those distances cannot be for any round-about route that we can "travel" as we like. The distance between a job location and your home is calculated as the SHORTEST of the more commonly traveled routes between them.

The Time Test

Rules vary depending on whether you are employed or self-employed.

1. If you are an EMPLOYEE, you should satisfy the 39 Week Test

You must work FULL TIME for at least 39 weeks during the first 12 months after you arrive in your new job location.
While you do not have to work for the same employer for all 39 weeks or work for 39 weeks consecutively, your work should be full time and within the same general commuting area during all those 39 weeks.

Seasonal workers should have worked FULL TIME for more than six months and their off- season period should be less than six months.

2. If you are SELF-EMPLOYED, you will have to satisfy the 78 Week Test

You must work FULL TIME for at least 39 weeks during the first 12 months and for a total of at least 78 weeks during the first 24 months after you arrive in your new job location.
While you do not have to work for the same employer or be self-employed in the same trade or business for the 78 weeks, you must work within the same general commuting area during all those 78 weeks.
Remember, you are not considered self-employed if you are semi-retired, a part-time student, or you do only part time work for a few hours each week.

You are allowed to count any full-time work you do either as an employee or as a self-employed person. Then one of the following situations may apply:

A .If you are BOTH employed and self-employed, the test depends on your principal place of work

If your principal place of work involves working for somebody else, then the 39-Week Test applies as for the employee.
If your principal place of work involves self-employment, then the 78-Week Test applies as for the self- employed person.

B. If you are BOTH self-employed and employed, but unable to satisfy the 39-week test for employees

Then the 78-Week Test applies as for the self-employed person.

PLEASE NOTE: The above discussion is only introductory in nature. It touches only a small part of the subject and even then covers only job-related move inside USA. For the latest, detailed and definitive information you should always consult the resources provided by the Internal Revenue Service (IRS).