Moving Expense Deduction

THIS DEDUCTION WAS ELIMINATED FOR THE YEARS 2018 THROUGH 2025

Can I deduct moving expenses for my move abroad?

If you have made your move overseas to start a new job or business, you may be able to deduct some expenses of your move. In order to be deductible, your moving expenses must have been paid or incurred in connection with starting a position at a new job location. The rules for this deduction are quite extensive and confusing so it is always best to consult an international tax expert who specializes in expat taxation. Below is a summary of the rules. See IRS Publication 521 for more detail.

To be able to deduct your moving expenses you must first meet all three of the following requirements:

  • Your move must be related to the start of work
  • You meet the distance test
  • You meet the time test

If you meet the bona fide residence test  or the physical presence test for at least 120 days in the year of your move, your moving expense is connected to your income entirely in that year. If you do not meet the bona fide residence test or the physical presence test for at least 120 days, the expenses are connected to earning income over a 2 year period.  If the move is from the US to a foreign country, your moving expense is allocable to the year of the move and the following year. If your move is from a foreign country to the US, your moving expense is allocable to the year of the move and the preceding year. See below on how to allocate expenses.

If you have to allocate your moving expenses over two years, it is recommended to request a filing extension for the tax return for the year of the move until after the end of the second year to make an accurate calculation. If you do not wait, you can calculate using the formula below but only include the current year amounts in the numerator and denominator. You will then have to file an amended return for the year of your move or recapture any additional unallowable amount as income in the following year.

Which expenses can I deduct?

  • Cost of moving household goods and personal effects from your old home to your new home
  • Cost of traveling form your old home to your new home (including lodging)
  • Cost of moving household goods and personal effects to and from storage
  • Cost of storing household goods and personal effects while at your new job location

IMPORTANT. Your move to a foreign country generally means that your income earned in your new home country is directly related to the moving expenses paid or incurred for the move.

How is the allocation computed?

Use the following calculation:

              EXCLUDED FOREIGN EARNED INCOME AND HOUSING                                                   AMOUNTS(BOTH YEARS)

TOTAL MOVING EXPENSE DEDUCTION   X            _______________________

                                                                                   TOTAL FOREIGN EARNED INCOME (BOTH YEARS)

Can I deduct moving expenses between two foreign countries?

Moving expenses between foreign countries are deductible if those expenses are allocable to income earned in the year of the move. You will have to qualify under either the bona fide residence test or the physical presence test for a period that includes at least 120 days in the year of the move.

Moving Across the Street or Overseas? Don’t forget to tell the IRS.

Regardless if you are moving across the street or moving abroad, it is important to let the IRS know. The Internal Revenue Service always uses the taxpayer’s address of record for the various documents that are required to be sent to a taxpayer’s “last known address.” It is important to update you address information so if the IRS knows where to send your refund or any correspondence.

You can update your address with the IRS by completing Form 8822, Change of Address at any time during the year.

The failure to notify the IRS of an address change recently prevented a taxpayer from contesting a lien for unpaid taxes. The Tax Court ruled that the taxpayer didn’t actually have to receive the notice of the tax lien in order for the lien to be valid. In the Tax Court case Duplicki v. Commissioner, No. 16533-10S L, U.S. Tax Court, 2012, the Court sided with the IRS. The Tax Court concluded that the lien sent to the taxpayer’s last known address was valid since the taxpayer didn’t prove that he provided the IRS either directly or indirectly (e.g., through a change of address card) with a clear and concise notification of his change of address.

Don’t let this happen to you. It could be very costly if you do not respond to a notice from the IRS.

Let US Expat Tax Help help you navigate the tricky waters of U.S. taxes. Give us a call or send us an email today - and use more of your money to enjoy your life.