How Moving Can Affect Your Taxes

April 15th is tax day and if you’re like a lot of Americans, maximizing your deductions is at the top of your mind? If moved during 2012, your tax bill might be a bit smaller.

If you moved for a job (or if you are moving for a job) you might qualify for “above the line” tax deductions for the move. In other words, moving expenses are deducted before the adjusted gross income is calculated, so they lower your overall tax burden. Best yet, the form for filing for the deduction is very short and straightforward.

The IRS has strict qualifications for deducting moving expenses. If you move for family reasons or simply because you like an area better, you won’t qualify. However, if you move for a job, there’s a good chance you could save some money, but only if your employer didn’t cover the move (there may be exceptions if the employer adds moving costs to your salary).

The first test is the 50-mile radius test. The distance between your new home and your new job must be 50 miles greater than the distance between your old home and your new job. It’s doubtful many people in the Bay Area would qualify. If your old home is 60 miles from work, your new home would need to be no more than 10 miles from your work.

The second test you must pass is proving that you really did move for a job – by working there. You must be employed for at least 39 weeks during the 12 months after you make the move to qualify. You can work for several employers in the area during the 12 month period, but you must be employed for 39 weeks in that area. The IRS will make an exception if you are laid off or transferred.

If you are self-employed, the first two tests apply, but so does a third. You must work full time in the area for 78 weeks during a 24 month period.

If you are unemployed, as long as you find work at your new location and are able to pass the first two tests, you will most likely qualify.

If you are filing jointly, only one spouse needs to qualify.

What is covered?

If you qualify for the moving tax deductions, it’s mostly only the direct costs associated with the move that are covered. The IRS will allow deductions for packing, shipping, insurance for your move and up to 30 days storage. They will also include lodging and mileage. You can deduct one trip to your new home before the move. They will not cover costs associated with breaking leases or other contracts at your old location.

If you are planning a move for 2013, you might want to keep the tests in mind when searching for your new home.