While purchasing a new home or apartment is an exciting life event, it can be expensive. Whether you’re paying $15 for packing materials or over $1,000 for a van rental, moving expenses can add up. And unless you have an employer offsetting the relocation costs for a new job, or a nest egg saved up, these moving costs could have a significant impact on your finances. This impact is all the more stressful if you are simultaneously budgeting for renovation costs on an old home, and/or the higher cost of living in places like New York and California.
However, as a taxpayer you might be able to get “write-offs,” otherwise known as itemized deductions, depending on whether you take a standard deduction. This begs the question: Which moving expenses are tax deductible? The answer is a bit tricky.
If you’ve ever been self-employed, you might already be familiar with how the IRS has changed the criteria for write-offs over the years, and how that lowers your taxable income. Prior to the passage of the Tax Cuts and Job Act in 2017, the IRS deemed certain moving expenses tax deductible.
That allowance, however, has been suspended until at least the 2025 tax year for most Americans.
The one exception is active-duty military members who are moving as a result of a permanent change of station. If you aren’t a member of the armed forces and/or don’t find yourself qualifying via that select category, you likely won’t be able to deduct any moving expenses.
There are a few states that still have exceptions, so you can check to see if the state you are living in allows for tax deductions.
If you are a member of the armed forces, chances are that your family has been asked to move around to new locations. And if you are an active-duty military member, you do have some options for tax deductions for any costs that exceed reimbursements covered by the military. According to the IRS, you can claim the cost of moving household goods and personal effects, storing those goods and effects, and travel. You are allowed to deduct any moving expenses associated with a trailer, packing and crating, as well as insurance.
A word of caution if you are on active duty: the IRS prohibits deducting moving expense deductions for any goods or furniture purchased en route from your former home to your new home. Also not deductible on your tax return – other expenses related to real-estate taxes or mortgage penalties.
If you are one of the many renters transitioning their home into their new workplace, you may be able to make your new home office tax deductible. The main loophole is if you perform business from a home office, which has become popular during the COVID-19 pandemic. Not just everyone can claim deductions from a home office, however, and W-2 employees cannot deduct anything, regardless of how much time they spend working from home. However, if you are self-employed, and work in a space "exclusively and regularly for your trade or business," you may be eligible for a home-office deduction. The easiest method for determining how much you are able to deduct, per the IRS, is to multiply $5 per square foot of your home office. For example, if you work from a 250-foot room, you can deduct $1,250 from your federal tax return.
This benefit only applies for employers, not employees. Due to this, many people are considering making the shift to self-employment while working from home. The financials might not add up, so think twice if your motivation to be self-employed is solely for the break on your income tax return. Forbes has an excellent break-down of all of the new implications of the tax rule that might help you with your decision.
Navigating any IRS form can be daunting, and we’ve only scratched the surface of itemized deductions on your federal return. We’ll leave you with this simple parting advice: you can’t deduct moving expenses, but you can deduct other at-home costs. Be sure to include them if you’re renting in 2021.