Moving? What you should know about the suspended moving expense deduction

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In a Nutshell

Tax reform suspended the moving expense deduction for most Americans. But your state may still allow a deduction for moving expenses. There are also other steps you can take to defray the cost of your move — and your tax bill — in 2018.
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This article was fact-checked by our editors and Christina Taylor, MBA, senior manager of tax operations for Credit Karma Tax®. It has been updated for the 2019 tax year.

Most Americans who move in this year won’t be able to take a federal tax deduction for moving expenses, thanks to the Tax Cuts and Jobs Act of 2017.

Tax reform suspended the deduction for most people until the 2026 tax year. For now, only active-duty members of the military (and their families) who move because of their orders can still claim the deduction.

What’s more, before tax reform you might have been able to exclude from your gross income any reimbursement your new employer gave you to cover moving costs. But tax reform also suspended that exclusion for everyone but qualifying active-duty military.

Let’s look at what happened to the moving expense deduction and some alternatives for defraying moving costs.



What happened to moving expenses?

Prior to 2018, moving for a new job could earn you an above-the-line moving expense deduction to reduce federal taxable income by the cost of the move. While you had to meet certain criteria to qualify, you didn’t have to itemize to claim this deduction on your tax return.

Now, unless you’re an active-duty military member moving into a new home because of a military relocation, the deduction isn’t available to you.

Not being able to take a deduction for moving expenses means those costs won’t help lower your tax bill. In fact, you’ll also see your tax bill rise if your new employer provided you with money to cover moving costs to your new job location.

“Because moving expenses are not deductible, employer reimbursements for moving expenses are taxable to the employee,” explains Michael Sonnenblick, tax analyst with Thomson Reuters Checkpoint.

This means you’d pay taxes on the money given to you by your employer as if the money was ordinary income.

The good news is, Sonnenblick says, some employers are “looking at grossing up their moving-expense reimbursements to employees to counteract the fact [that] reimbursements are taxable.”

This would mean giving an employee more money than necessary for the move in order to cover the added taxes.

“The employer might have a blanket policy to gross-up payments to all employees, or an employee might have to negotiate a gross-up when discussing an employment-related move,” Sonnenblick says.

FAST FACTS

How did tax reform affect homeowners?

The Tax Cuts and Jobs Act of 2017 made several changes to the tax code that affect homeowners, including …

New limits on the mortgage interest deduction

Excluding the deductibility of home equity loans used for purposes other than buying, building or improving a home

Limiting the deduction for state and local taxes, including property taxes

Learn more about how tax reform affects homeowners

Is there any federal moving expense deduction still available?

Active-duty service members who must relocate because of a military order are still able to deduct moving costs on their federal tax returns. But most people aren’t able to claim any deductions to reduce the cost of relocating.

“The Tax Cuts and Jobs Act suspended or eliminated many itemized deductions, in addition to the moving expense deduction,” says Mark W. Nichols, a CPA and principal of Landmark Financial Services Group LLC in Andover, Massachusetts. “There are far fewer deductions allowed than in the past, and at this point, I do not see the IRS providing any further relief for taxpayers who must move.”

Some states still allow you to deduct moving expenses

While the federal government has suspended the tax deduction for moving expenses, taxpayers in some states may still be able to claim a deduction on their state tax return.

“Massachusetts, for example, still allows moving expenses to be deducted,” Nichols says. “This is because Massachusetts, in general, doesn’t adopt personal income tax law changes incorporated in the Internal Revenue Code after Jan. 1, 2005.”

Whether your state will allow moving expenses to be deducted depends on whether the tax laws where you live automatically update when federal tax laws change or whether legislation must be passed to update them.

Your state may also choose to pass a new law changing its default rules to either allow or disallow the deduction for moving expenses. For example, in New York, the state tax code updates automatically when IRS rules change, so the suspension of the moving tax deduction should apply in this state. However, New York passed a law after tax reform specifying that certain provisions of the Tax Cuts and Jobs Act would not be incorporated into state law — including the provision suspending the deduction for moving expenses.

The deduction may return, but until then …

Right now, the moving expense deduction and the moving expense reimbursement exclusion are both set to return as of Jan. 1, 2026, unless Congress decides to make a permanent change — and it just might.

“Be on the lookout,” Nichols warns. “Congress is working on making this law permanent.”

In fact, the House Ways and Means Committee included the permanent repeal of both the moving expense deduction and the reimbursement exclusion in three additional tax reform bills it recently introduced. These bills have been dubbed “Tax Reform 2.0.”

The disappearance of the moving expense deduction for the foreseeable future means you’ll need to find new ways to save on the costs of relocating. Here are some tips that could help.

  • Do as much of the move as possible yourself. Packing on your own, renting a truck, and loading and unloading your belongings yourself could help reduce moving costs. If you need to hire help, bring in professionals only for the tasks you absolutely can’t do yourself.
  • Shop around and compare prices. Get several written quotes from reputable moving companies if you decide to hire help. Make sure the movers come to your home to see what’s involved before they give you an estimate, so that you can avoid surprise costs.
  • Ask your local stores for free boxes. You can often get boxes inexpensively or even for free by visiting your local grocery or dollar store.
  • Try to move at a low-demand time. Moving costs more at certain times, like when there’s a greater demand for movers. You could find better prices if you schedule your move during the middle of the month, early in the morning and on a weekday.

Enlisting the help of friends can also make DIY-ing a move easier and allow you to skip the professional services that add cost to the process.


Bottom line

Moving can be a big hassle, and the suspension of the moving expense deduction doesn’t make the process any easier. While you can still take steps to save on a move, you can’t deduct the costs of relocating for work until at least 2026, unless you’re qualified military. You may still be able to take a state tax deduction for moving expenses though, so research the rules where you live to find out whether your state gives you a break on taxes due to incurring moving costs.


Christina Taylor is senior manager of tax operations for Credit Karma Tax®. She has more than a dozen years of experience in tax, accounting and business operations. Christina founded her own accounting consultancy and managed it for more than six years. She co-developed an online DIY tax-preparation product, serving as chief operating officer for seven years. She is the current treasurer of the National Association of Computerized Tax Processors and holds a bachelor’s in business administration/accounting from Baker College and an MBA from Meredith College. You can find her on LinkedIn.

Relevant sources:  Tax Cuts and Jobs Act of 2017 | IRS: Moving Expense Deduction | IRS Notice 2018-75, Guidance under Section 132(g) for the Exclusion for Income of Qualified Moving Expense Reimbursements | IRS Publication 535, Business Expenses | USA.Gov – Moving


About the author: Christy Rakoczy Bieber is a full-time personal finance and legal writer. She is a graduate of UCLA School of Law and the University of Rochester. Christy was previously a college teacher with experience writing textbo… Read more.