Other Deductible Expenses

In addition to deductible business expenses, you may be entitled to deduct certain other expenses.

Moving Expenses

If you changed job locations or started a new job, you may be able to deduct the reasonable expenses of moving yourself, your family, and your household goods and personal effects to your new home. However, you cannot deduct any expenses for which you received a tax-free allowance as a U.S. Government employee.

To deduct moving expenses, your move must be closely related to the start of work and you must meet the distance test and the time test.

Closely related to the start of work. The move must be closely related, both in time and in place, to the start of work at the new location. In general, you must have incurred your moving expenses within one year from the time you first report to your new job or business.

A move generally is not considered closely related in place to the start of work if the distance from your new home to the new job location is more than the distance from your former home to the new job location. A move that does not meet this requirement may qualify if you can show that you must live at the new home as a condition of employment, or you will spend less time or money commuting from the new home to the new job.

Distance test. Your new main job location must be at least 50 miles farther from your former home than your old main job location was. If you did not have an old job location, your new job location must be at least 50 miles from your former home.

Time test. If you are an employee, you must work full time for at least 39 weeks during the first 12 months after you arrive in the general area of your new job location.

Deductible moving expenses. Moving expenses that can be deducted include the reasonable costs of:

1. Moving household goods and personal effects (including packing, crating, in-transit storage, and insurance) of both you and members of your household, and
2. Transportation and lodging for yourself and members of your household for one trip from your former home to your new home (including costs of getting passports).

The cost of your meals is not a deductible moving expense.

The costs of moving household goods include the reasonable expenses of moving household goods and personal effects to and from storage. For a foreign move, the costs also include expenses of storing the goods and effects for part or all of the period that your new job location abroad continues to be your main job location.

Expenses must be reasonable. You can deduct only those expenses that are reasonable for the circumstances of your move. For example, the costs of traveling from your former home to your new one should be by the shortest, most direct route available by conventional transportation.

Members of your household. A member of your household includes anyone who has both your former home and new home as his or her home. It does not include a tenant or employee unless you can claim that person as a dependent.

Retirees. You can deduct the costs of moving to the United States when you permanently retire if both your former main job location and former home were outside the United States and its possessions. You do not have to meet the time test described earlier.

Survivors. You can deduct moving expenses for a move to the United States if you are the spouse or dependent of a person whose main job location at the time of death was outside the United States and its possessions. The move must begin within 6 months after the decedent's death. It must be from the decedent's former home outside the United States, and that home must also have been your home. You do not have to meet the time test described earlier.

How to report moving expenses. Use Form 3903 to report your moving expenses and figure your allowable deduction. Claim the deduction as an adjustment to income on Form 1040. (You cannot deduct moving expenses on Form 1040A or Form 1040EZ.)

Reimbursements. Except for the tax-free foreign areas allowances described earlier under Allowances, Differentials, and Other Special Pay, you must include all reimbursements of, or payments for, nondeductible moving expenses in gross income for the year paid. You must also include in gross income all reimbursements paid to you under a nonaccountable plan. Your employer should include these amounts in your wages on your Form W-2.

Additional information. For additional information about moving expenses, see Publication 521.

Other Itemized Deductions

You may be able to claim other itemized deductions not connected to your employment.

Contributions. You can deduct contributions to qualified organizations created or organized in or under the laws of the United States or its possessions. You cannot deduct contributions you make directly to foreign organizations (except for certain Canadian, Israeli, and Mexican charities), churches, and governments. For more information, see Publication 526, Charitable Contributions.

Real estate tax and home mortgage interest. If you receive a tax-free housing allowance, your itemized deductions for real estate taxes and home mortgage interest are limited. You must reduce the amount of each deduction that would otherwise be allowable by the amount of each expense that is related to the tax-free allowance.

Required statement. If you receive a tax-free housing allowance and have real estate tax or home mortgage interest expenses, attach a statement to your tax return. The statement must contain all of the following information.

1. A list of each class of taxable income by class plus the amount.
2. A list of each item of tax-free housing allowance income plus the amount.
3. A list of each item of otherwise deductible expense plus the amount.
4. An explanation of how you figured the nondeductible part of your otherwise allowable expenses.
5. A statement that the other expenses on your tax return are not related to tax-free income.

Example. Adam is an IRS employee working overseas who receives a $6,300 tax-free housing and utility allowance. During the year, Adam used the allowance, with other funds, to provide a home for himself. His expenses for this home totaled $8,400 and consisted of mortgage principal ($500), insurance ($400), real estate taxes ($1,400), mortgage interest ($4,000), and utility costs ($2,100). Adam did not have any other expenses related to providing a home for himself.

Adam must reduce his deductions for home mortgage interest and real estate taxes. He figures a reasonable way to reduce them is to multiply them by a fraction: its numerator is $6,300 (the total housing and utility allowance) and its denominator is $8,400 (the total of all payments to which the housing and utility allowance applies). The result is 3/4. Adam reduces his otherwise allowable home mortgage interest deduction by $3,000 (the $4,000 he paid ×  3/4) and his otherwise allowable real estate tax deduction by $1,050 (the $1,400 he paid × 3/4). He can deduct $1,000 of his mortgage interest ($4,000 - $3,000) and $350 of his real estate taxes ($1,400 - $1,050) when he itemizes his deductions.

Exception to the reduction. If you receive a tax-free housing allowance as a member of the military or the clergy, this reduction does not apply. This means you can deduct all the real estate tax and home mortgage interest expenses you are otherwise entitled to deduct.

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