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Moving & Taxes and Examples of Tax-Deductions

Tom Smith is married and has two children. He owned his home in Detroit where he worked. On February 8, his employer told him that he would be transferred to San Diego as of April 10 that year. His wife, Peggy, flew to San Diego on March 1 to look for a new home. She put a down payment of $25,000 on a house being built and came back to Detroit on March 4. The Smiths sold their Detroit home for $1,500 less than they paid for it. They contracted to have their personal effects moved to San Diego on April 3. The family drove to San Diego where they found that their new home was not finished. They stayed in a nearby motel until the house was ready on May 1. On April 10, Tom went to work in the San Diego plant where he still works.

His records for the move show:

Tom was reimbursed $10,599 under an accountable plan as follows:

Tom's employer gave him a breakdown of the amount of reimbursement.

The employer included this reimbursement on Tom's Form W-2 for the year. The reimbursement of deductible expenses, $7,200 ($6,800 + $400) for moving household goods and travel to San Diego, was included in box 13 of Form W-2. His employer identified this amount with code P.

The employer included the balance, $3,399 reimbursement of nondeductible expenses, in box 1 of Form W-2 with Tom's other wages. He must include this amount on line 7 of Form 1040. The employer withholds taxes from the $3,399, as discussed under Nondeductible expenses, earlier. Also, Tom's employer could have given him a separate Form W-2 for his moving reimbursement.

Tom figures his deduction for Moving and Relocation Expenses as follows:

Tom enters these amounts on Form 3903 to figure his deduction. His Form 3903 and Distance Test Worksheet are shown later. He also enters his deduction, $1,200, on line 26, Form 1040.

Nondeductible expenses. Of the $42,974 expenses that Tom incurred, the following items cannot be deducted.

• Item 1, pre-move househunting expenses.

• Item 2, the down payment on the San Diego home. If any part of it were for payment of deductible taxes or interest on the mortgage on the house, that part would be deductible as an itemized deduction.

• Item 3, the real estate commission paid on the sale of the Detroit home. The commission is used to figure the gain or loss on the sale.

• Item 4, the loss on the sale of the Detroit home. The Smiths cannot deduct it even though Tom's employer reimbursed him for it.

• Item 6, the meals expenses while driving to San Diego. (However, the lodging and car expenses are deductible.)

• Item 7, temporary living expenses.

Form 3903--Smith

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More information on Moving and Your Taxes from the IRS

• Introduction to Moving and Relocation Expenses and Taxes

• Which Moving and Relocation Expenses are deductible?

• Which Moving and Relocation Expenses are NOT deductible?

• Examples of Tax-Deductions

• How do you report it?

• Visit the IRS website to download the necessary forms

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