Planning on moving in 2019? Then you need to listen up. With the Tax Cuts and Jobs Act of 2017, a majority of American taxpayers relocating this year will experience big changes in financing their move. Here’s everything you need to know about how the tax reform has affected moving deductions.
Before the recent tax reform, taxpayers were able to claim a deduction on the costs of moving household items and personal belongings, in addition to travel-related expenses to the new home. While certain criteria needed to be met in order to apply, this deduction did not need to be itemized to claim on your tax return. However, when the Tax Cuts and Jobs Act of 2017 was signed into law, it suspended the ability to deduct moving expenses for most Americans until 2026.
Moving Expense Deduction Rules Before Tax Reform
Prior to the Tax Cuts and Jobs Act, you could qualify for moving expense deductions if:
- Your employer didn’t pay or reimburse the moving costs and exclude the payment or reimbursement from your income.
- You have worked a minimum of 39 weeks within the first year of your move, depending on employment status, with exceptions for members of the military.
- The commute from your old home to your new job location was at least 50 miles from your former home, proving that the move was work related.
If you met the above requirements, the following moving expenses could be deducted (as long as they are necessary for you move):
- Cost of hiring professional movers or packers.
- Cost of a moving truck rental.
- Cost of insuring belongings during the move.
- Cost of moving supplies (boxes, packing materials, etc).
- Cost of moving your car.
- Cost of connecting and disconnecting utilities.
- Cost of storing belongings up to 30 consecutive days.
- Cost of temporary lodging.
- Cost of gas, oil, parking fees, etc.
The Impact of the Tax Reform on Moving Expenses
That was then. Now, these deductions are no longer available. While the reform has provided new lower tax rates for many people, it’s eliminated the opportunity for these moving expenses to help lower your tax bill. Even further, if your employer does provide money to cover your moving costs, your tax bill will actually be higher. This is because those employer reimbursements will be taxed the same way ordinary income would.
Who’s Affected by the Tax Reform?
Taxpayers who are members of the active duty military that are moving due to a military order are the only exception to the new reform. All other taxpayers for tax years beginning in December 31, 2017 through December 31, 2025 will not be able to deduct moving expenses starting this year. However, any moves that occurred in 2017 but were reimbursed by an employer in 2018 will not be taxed on the reimbursement.
The Good News?
Many employers are looking at grossing up their reimbursements for moving expenses enough to counteract the taxable impact. In other words, they’ll provide the additional money necessary to cover the move AND those added taxes. If your employer does not have a policy for this in place, you may have to negotiate a gross-up while considering a potential employment-related move.
There are also some states that still allow taxpayers to claim a deduction on their state tax return. While Pennsylvania is not one of them, these laws may differ based on the state in which you are relocating or where your employer is located.
For more information on preparing for your upcoming move or how to minimize your expenses, contact our team of professionals for more tips and info.