PCS moves are expensive. Even with all the allowances, you’ll sometimes have some out-of-pocket expenses, especially if you have pets. Thankfully, unreimbursed moving expenses can be deducted from your income taxes, and they’re a most valuable type of deduction.
Disclaimer: No article can address every specific tax situation. Do not make any decisions based solely on the information I am sharing here. Read the IRS rules yourself, and talk to your tax preparer. However, if your tax preparer is telling you to deduct things that don’t jive with the IRS rules, you might want to look into that situation.
Are You Eligible To Deduct Moving Expenses?
Under the current tax law, most people aren’t eligible to deduct moving expenses. Military members, however, still get to deduct these expenses. They do not have to meet the time or distance test if moving on Permanent Change of Station (PCS) orders. Military moves should still be within 1 year of the start of work in order to meet the “move closely related to the start of work” test.
How To Deduct Moving Expenses
Deductible moving expenses are calculated using IRS Form 3903. It’s a remarkably simple form, but the instructions aren’t as clear as they could be. Once you’ve calculated the amount you can deduct, it goes on Line 14 of Schedule 1 of the 1040 Income Tax Return. This “above-the-line” deduction is more valuable than a regular deduction because it doesn’t require that you itemize deduction in order to benefit. It also lowers your Adjusted Gross Income (AGI), which affects eligibility for other credits and deductions.
What You Can Deduct
Claimed expenses must be “reasonable” and “necessary.” The IRS has a handy-dandy tool that helps you determine which expenses are deductible. It’s not all-inclusive, but it does hit on many common expenses. According to the tool, you may deduct the unreimbursed portion of:
- packing, crating, and transporting your household goods and personal effects
- connecting or disconnecting utilities
- shipping your car
- transporting your household pets
- moving your household goods and personal effects from a place other than your former home, up to the cost it would have been to ship those same items from your former home
- the cost of storing and insuring household goods and personal effects within any period of 30 consecutive days after the day your things are moved from your former home and before they are delivered to your new home.
- lodging expenses while traveling to your new home
- car transportation expenses, using either actual expenses or the standard deduction
- transportation expenses (other than car)
What You Can’t Deduct
Some things that seem like they might be deductible are not actually deductible.
- You can not deduct meals while traveling from your old home to your new home.
- The temporary lodging deduction is limited to one day after you move out of your old house, the days of travel, and one day after you arrive at your new home.
Other things that are not deductible include:
- The cost of lodging beyond your first night in your new location.
- Vehicle registration fees or license plate costs.
- Driver’s license.
- Any part of the purchase price of a home.
- Costs of buying or selling a home (including closing costs, mortgage fees, and points).
- Costs of entering into or breaking a lease.
- Home improvements to help sell your home.
- Loss on the sale of your home.
- Losses from disposing of memberships in clubs.
- Mortgage penalties.
- Real estate taxes.
- Refitting of carpet and draperies.
- Return trips to your former residence.
- Security deposits (including any given up due to the move).
- Storage charges except those incurred in transit and for foreign moves.
You Can’t Deduct Costs That Were Paid By The Military
Military members must be sure to properly account for allowances received for the expenses they are deducting.
For example, if you received a $550 allowance towards the quarantine of a pet during a move, and you actually paid $750 for pet quarantine expenses, you would report both the total expense and the reimbursement amount on the Form 3903, resulting in a $200 deducting for pet quarantine expenses.
About Dislocation Allowance
Whether or not you need to report Dislocation Allowance when calculating your deductible moving expenses is the subject of disagreement.
The examples in the Volunteer Income Tax Assistance training materials say that you do need to report Dislocation Allowance as a reimbursement: https://www.irs.gov/pub/irs-pdf/p4491.pdf (Do a CTRL-F and search for “dislocation.”)
But then the form itself says that you don’t:
“Do not include the value of moving or storage services provided by the government. Also, don’t include any part of a dislocation allowance, a temporary lodging allowance, a temporary lodging expense, or a move-in housing allowance. This excluded amount should be identified on Form W-2, box 12, with code P.”
This is way beyond me. I am absolutely not giving you advice either way. You’ll need to talk to your tax advisor to figure out how you want to proceed with regard to Dislocation Allowance.
The moving expense deduction can help defray some of the out-of-pocket costs in a move, but it is very important to follow the rules carefully. You can’t deduct everything you spend during a move, and you can’t deduct things for which you’ve received a reimbursement. Doing it correctly may help avoid further questioning or a possible audit by the IRS.