FEDTAX * IRS * HOME * PUB_521

Example

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:

1) Peggy's pre-move househunting trip:
Travel and lodging $ 449
Meals   75   $   524
2) Down payment on San Diego home 25,000
3) Real estate commission paid on sale of Detroit  home 3,500
4) Loss on sale of Detroit home (not including real  estate commission) 1,500
5) Amount paid for moving personal effects  (furniture, other household goods, etc.) 8,000
6) Expenses of driving to San Diego:
Mileage (Start 14,278; End 16,478)  2,200 miles at 12 cents a mile $ 264
Lodging 180
Meals   320   764
7) Cost of temporary living expenses in San Diego:
Motel rooms $1,450
Meals   2,280     3,730  
Total $43,018

Tom was reimbursed $10,643 under an accountable plan as follows:

Moving personal effects $ 6,800
Travel (and lodging) to San Diego 444
Travel (and lodging) for househunting trip 449
Lodging for temporary quarters 1,450
Loss on sale of home   1,500  
Total reimbursement $10,643

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, $7,244 ($6,800 + $444) 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 expenses as follows:

Item 5, moving personal effects (line 1) $8,000
Item 6, driving to San Diego ($264 + $180) (line 2)   444  
Total deductible moving expenses (line 3) $8,444
Minus: Reimbursement included in box 13 of  Form W-2 (line 4)   7,200  
Deduction for moving expenses (line 5) $1,244

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, $1,244, on line 26, Form 1040.

Nondeductible expenses. Of the $43,018 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