Time Test

The third and final test for a deductible move is that, if you're an employee, in the first year after you start work in the new location you must work full-time for at least 39 weeks.

If you are self-employed (as a sole proprietor or partner), you must work full time for at least 39 weeks in the first year, and you must also work full time for at least 78 weeks in the first two years.

The weeks need not be consecutive, and they don't have to be with the same employer or in the same business activity if you are self-employed. "Full-time work" means whatever is considered full-time in your occupation and region. Also, vacation time or time off because of illness, strikes, layoffs, natural disasters, or similar causes counts as time worked. If you are using the self-employed rule, you can count time spent as an employee as well as time working for your own company toward the 78-week requirement.

This rule can be waived only if your work is cut short due to death or disability, or if you obtained full-time work but you were transferred by the employer or were laid off for a reason other than misconduct.

If you are filing a joint return, the move is deductible if either spouse meets the 39-week test, or the 78-week test if self-employed. However, time worked by one spouse can't be added to time worked by the other spouse.

Example K.C. Jones decides to move from Boston to Dallas because he believes there are better job prospects there. He moves himself and his family to Dallas at his personal expense, where he finds a job with an oil company. After working full-time for 30 weeks, his job ends. He then moves to Santa Fe and gets a job there, which he holds for more than 39 weeks. Meanwhile his wife, Tracy, found a job in Dallas at the same time as her husband and worked there for another nine weeks after he left for Santa Fe. Since Tracy met the 39-week requirement for work in Dallas, the entire family's move from Boston to Dallas is deductible if the couple files a joint return. Since K.C. met the 39-week requirement in Santa Fe, the family's moving expenses from Dallas to Santa Fe will also be deductible.

Obviously, the one-year period after you begin work in a new location might not coincide with your tax year, which is a calendar year for most individuals. The IRS very graciously allows you to deduct your moving expenses on this year's tax return even if you have not yet met the 39-week or 78-week requirements, as long as you reasonably expect to meet them within the allotted time.

If it later turns out that you can't meet the test, and you don't qualify for any of the exceptions, you have a choice. You can either amend your tax return for the year you claimed the moving expenses using IRS Form 1040X, or add back the expenses as miscellaneous income to your tax return for the year in which you fail the test.

Example You moved in December of 2010 to transfer to a new location and take a different job with your employer of 20 years, and because it seemed likely that your job would continue indefinitely, you deducted your moving expenses on your 2010 tax return. However, in May of 2011, your employer offers you a buy-out for early retirement, and you decide to accept the offer and retire to the beach. Because you did not work for 39 weeks at the new location, your moving expenses were rendered nondeductible. You could file an amended return for 2010 to rescind the deduction; however, since your income (and your tax rate) is lower in 2011 due to your retirement, you decide instead to report the moving expenses as miscellaneous income (on Line 21 of your Form 1040) in 2011.