Which moving expenses are deductible?

Deductible moving expenses are limited expenses reasonably incurred in:

• moving household goods and personal effects from the former residence to the new residence; and
• traveling from the former lodging to the new lodging. "Traveling" includes the reasonable cost of lodging during the entire period of travel. There is no dollar limit on the deduction, but expenses must be reasonable and they must be substantiated.

Checklist of requirements. The following requirements apply to the moving expense deduction:

• the expenses must be incurred in connection with the start of work at a new principal place of employment;
• the distance between the new principal place of employment and the former residence must be at least 50 miles greater than the distance from the former place of employment to the former residence; and
• the person is a full-time employee in the general location of the new place of employment for at least 39 weeks of the 12-month period immediately following the person's arrival at the new location (for self-employed individuals, the period is 78 weeks out of 24 months).

Tax effect. Qualified moving expenses that are reimbursed directly or indirectly are not includible in gross income. Instead, they should be reported on Form W-2 as an excludable moving expense reimbursement.

If an employer does not reimburse the employee for these qualified moving expenses, the employee can claim them as a deduction on his or her individual tax return. There is no dollar limit on the deduction but expenses must be reasonable and they must be substantiated.

Excess amounts. Amounts in excess of the qualified moving expenses are considered wages to the employee and are subject to federal income tax withholding as well as FICA and FUTA taxes.

Nondiscrimination. Qualified moving expenses may be provided in a discriminatory manner with respect to highly paid employees and the value of the benefit is not included in the employee's income.

Reprinted with permission. © CCH