In this final part of this series I want to talk about what happens if a taxpayer took a deduction for moving expenses and then no longer meets the requirements for taking the deduction.
Basic Review
In order to deduct moving expenses, a taxpayer must be moving for work-related reasons and the move must meet:
- The time test and
- The distance test
The time test means the taxpayer must be employed full-time in the new location for at least 39 weeks in the 12 months following the date of the move.
The distance test means the new workplace must be at least 50 miles further away from the taxpayer’s old home than their old job was from their old home. (This is the most confusing requirement relating to moving expenses. See the Part 1 for an example that better illustrates this requirement.)
Not Meeting the Time Test
The time test need not be met by the time the taxpayer files their tax return in order for them to take the deduction.
Example
Joe moves to a new city in December of 2016. The move is work-related and meets the distance test. Joe can take a deduction for his moving expenses even though he hasn’t met the time test by the end of 2016 or by the time he files his 2016 tax return.
So the question is, what happens if a taxpayer claims a deduction for moving expenses and then later fails to meet the time test?
In our example above, let’s say something happens and as 2017 goes on it becomes obvious he won’t meet the time test. Joe will have two options:
- Amend his 2016 return to remove the moving expenses he deducted, or
- Claim the 2016 moving expense deduction as income on his 2017 return. For example, if he deducted $1,000 of moving expenses on his 2016 return, he would claim $1,000 of income on his 2017 return.
Joe (or his tax pro) would need to run the numbers and see which option is most beneficial (or in this case, the least painful).
Further Reading: