Understanding Form 3903: Your Guide to Moving Expense Deductions
Moving can be stressful, and it can also be expensive. Fortunately, if you’re moving for work, you might be able to deduct some of those costs using IRS Form 3903. Let’s break down what this form is all about and how it can potentially save you some money on your taxes.
What Exactly is Form 3903?
Form 3903, officially titled “Moving Expenses,” is a form you use to figure out how much you can deduct from your taxes for moving expenses. Think of it as your official record of your move, as it relates to your job. The IRS allows you to deduct some moving expenses if you meet specific requirements. This deduction lowers your taxable income, which in turn, can reduce the amount of taxes you owe.
Background: Why Does This Form Exist?
For many years, the IRS recognized that people often relocate for their careers. To ease this financial burden, the tax code allowed deductions for work-related moving expenses. These deductions were meant to encourage people to take jobs that might be geographically distant, thus supporting the economy. However, the Tax Cuts and Jobs Act of 2017 significantly changed who can use this deduction. For tax years 2018 through 2025, it was significantly limited, which we’ll talk about more later.
Who Can Use Form 3903?
Here’s the tricky part: not everyone can claim moving expenses anymore. Due to recent changes, this deduction is primarily limited to members of the U.S. Armed Forces on active duty.
- Members of the U.S. Armed Forces: If you’re a member of the military on active duty, and you’re moving due to a permanent change of station, you can potentially claim a deduction for your moving expenses.
- Moving to and from Military Stations This often involves moving from one base to another or from your home to your first base after enlistment.
- Qualified Moving Expenses: The move must be directly related to your military service.
- Non-Military Taxpayers: As of right now, most taxpayers other than active-duty members of the military cannot use Form 3903. This is a big change from previous tax laws, and it’s important to be aware of this significant limitation.
What Moving Expenses are Deductible?
If you’re a member of the armed forces and you qualify, you can deduct the following:
- Transportation of Household Goods and Personal Belongings: This includes the cost of packing, crating, and transporting your things, as well as insurance. If you move your belongings yourself using a rental truck or trailer, you can deduct actual expenses you paid, like truck rental or gas. But you can’t deduct the value of your time or labor.
- Travel to Your New Home: This includes lodging and transportation costs to travel from your old home to your new home. This can include gas if driving or airfare if flying. If you drive, you can also deduct a standard mileage rate, which the IRS sets each year.
Non-Deductible Moving Expenses:
It’s also good to know what you can’t deduct. These include:
- Meals During the Move: Food expenses incurred during the move are not deductible.
- Losses from Selling Your Old Home: If you sell your house for less than you paid, you can’t deduct that loss.
- Pre-Move House-Hunting Trips: Costs associated with looking for a new place to live before you move are not deductible.
- Temporary Living Expenses: Costs for temporary lodging or meals in your new location while you wait to move into a permanent home are not deductible
- Expenses for the sale of your old home
- Expenses for entering into a new lease
How Does Form 3903 Work?
Form 3903 is pretty straightforward. It has two parts:
- Part I: Here, you list your moving expenses. This is where you tally up all the eligible costs of transporting your goods and traveling to your new home.
- Part II: This part calculates your deduction. Depending on your situation, some of your expenses might be capped, and this section will determine your total allowable deduction amount. This amount is then transferred to Schedule 1 (Form 1040), which is used to determine your adjusted gross income (AGI) and tax liability.
Understanding the Distance and Time Tests (Not Applicable for Military Members)
The previous rules, before 2018, used to require that a move met two tests to qualify for a deduction: the distance test and the time test. These tests are no longer relevant for members of the armed forces on active duty; however, it is important to mention them for context and understanding since some tax payers may still read or find information about these tests.
- Distance Test: This test requires that your new work location be a certain distance from your old home. Generally speaking the new location had to be at least 50 miles further from the old residence than the old work place location.
- Time Test: This test requires you to work in the new area for a specific period of time. This test used to make sure it was a legitimate job opportunity and not just a temporary relocation.
Again, while these tests are not applicable to military personnel, it helps explain changes to current rules and allows for understanding older tax regulations.
Common Mistakes and How to Avoid Them
- Assuming You Can Deduct Everything: The deduction is for “reasonable” moving expenses. The IRS may question very high costs, so make sure your costs are documented and make sense for your move.
- Missing Deadlines: Tax forms must be submitted by the required deadline. Ensure you file Form 3903 (if you qualify) as part of your tax return.
- Misunderstanding the Rules It is very common to misunderstand the current rules for this deduction. As of right now, it is not as easily available to all taxpayers as it used to be.
- Losing Receipts: Keep all receipts related to your moving expenses. If you need to prove what you spent to the IRS you’ll need them.
- Not Consulting a Tax Professional: Tax laws can be complicated and change over time. If you’re not sure, get help from a tax professional. They can help you determine whether you qualify and ensure you get the deductions you are entitled to.
Related Concepts
- Schedule 1 (Form 1040): This is where your moving expense deduction from Form 3903 ends up.
- Adjusted Gross Income (AGI): This is your total gross income minus certain deductions, including moving expenses. Reducing your AGI is key to lowering your tax bill.
- Permanent Change of Station (PCS): This refers to the military orders that result in a move and qualify you for moving expenses.
Key Takeaways
- Form 3903 is primarily for active-duty military members who have moved due to a permanent change of station.
- Eligible expenses include transporting household goods and traveling to your new home.
- Keep records and receipts of all moving expenses to substantiate the deduction.
- Understand current rules and regulations since they have changed in recent years
- Consult with a tax professional when needed to ensure that you are taking advantage of all tax benefits applicable to you.
Moving can be a significant financial event, especially when done because of job relocation or military assignment. Properly using Form 3903 if you qualify can reduce your tax liability and help you offset some of the expenses you incur. It is always good practice to understand your tax situation and get advice from a qualified tax professional if you have questions.