Are Moving Expenses Tax Deductible for Your 2020 Returns?
Moving to a new home is an exciting new step. It’s also one that comes with expenses you don’t budget into your everyday life — for example, the moving van, packing materials, and mileage. This means that if you moved in 2020 (or if you’re planning to move soon) and are preparing for tax season, your move may have implications for how you file this year.
This begs the question: Are moving expenses tax deductible? The short answer is that while certain aspects of moving are no longer tax deductible, there are definitely still ways to save on your taxes after a move.
Are moving expenses tax deductible under the Tax Cuts and Jobs Act?
Due to the Tax Cuts and Jobs Act (TCJA) passed in 2017, most people can no longer deduct moving expenses on their federal taxes. This aspect of the tax code is pretty straightforward: If you moved in 2020 and you are not an active-duty military member, your moving expenses aren’t deductible.
Prior to the TCJA, certain expenses were deductible — and they might be once again when most of the provisions aimed at individuals expire. But for the tax years 2018-2025, H&R Block notes, Congress traded deductions like this for a larger standard deduction and lower marginal tax rates. This could change if Congress passes updated legislation.
In addition, if you are moving for an employer and your company has given you a moving allowance, that’s now treated and will be reflected as taxable income on your W-2. The good news is that employers know this, and they may offer a relatively larger relocation allowance to cover the tax implications. If you’re moving soon, consider asking for more money as you negotiate the move. Keep detailed records, receipts, and track how much you spend for your move — you’ll be happy you did when it’s time to file your tax return.
It’s worth pointing out that the TCJA applies to tax code at the federal level. While most states automatically change their tax laws in accordance with federal guidelines, some states still allow a moving expenses deduction on your state tax return. Check to see if your own state allows a deduction for moving expenses.
How to claim a home office for tax deductions
In 2020, working from home went from being a rare perk to the typical office’s new standard amid the pandemic. Whether you moved last year or not, if you’re self-employed or run your own business from home, this might be a good time to take advantage of another tax break: the home office deduction.
Home office deductions can look a little complicated under the TCJA, and not everyone can take advantage. If you’re a W-2 employee, you can’t deduct it — even if you work from home full time.
To know for sure if you qualify for the deduction, read IRS Publication 587. In a nutshell, it says that you likely qualify if you have a specific portion of your home that acts as your principal place of business, such as working with patients, clients, or customers.
Your office needs to be a dedicated room or “separately identifiable space.” This might be as simple as a desk in the corner of a larger room — however, you can’t claim the whole room as a deduction if it’s shared with other activities. Forbes says the simplest option is claiming a deduction of $5 per square foot used strictly for business, with a maximum of 300 square feet.
Tax breaks for active-duty military
This new rule has a big exception: If you’re an active-duty service member moving as a result of a permanent change of station (PCS), you can still deduct many kinds of unreimbursed out-of-pocket moving expenses.
Active-duty military members are able to deduct certain expenses if they exceed the given PCS allowance. These include expenses such as the costs of packing and moving of household goods and personal effects, transporting pets, in-transit storage, lodging and airfare costs during the move, and others. However, there are other moving expenses you cannot deduct such as expenses related to buying and selling a home, real estate taxes, mortgage penalties, etc. You’ll need to record your deductible expenses on Form 3903 and then follow the instructions to carry the total deduction to your Form 1040.
How to deduct charitable donations
One of the biggest tasks on any moving to-do list is downsizing. You may have donated furniture, clothing, and other belongings that weren’t destined for your new home. Beyond the goodwill of giving these donations, there are also tax benefits: As long as you kept your receipt, you can claim a deduction on these charitable donations.
To deduct items like clothing, household goods, used furniture, shoes, and books, the IRS requires that you price your items at the time of donation. Most major agencies offer valuation guides, such as the Goodwill Valuation Guide and the Salvation Army Donation Value Guide, to help. Of course, be sure not to just choose the original retail price; you should factor in the item’s age and condition, and it should represent the current fair market value.
And don’t forget that receipt! Whether you moved last year or are planning to do so soon, proof of donation will come in handy for your tax records.
In the middle of a move, taxes might be the last thing on your mind. But little actions like keeping track of receipts and staying on top of changes to the tax code make it possible to reap even more benefits from moving. Aside from the exciting new location, the opportunity to decorate however you like, and that new home feeling, a potential moving expenses deduction may just be the cherry on top for your move.