Are you planning to move cross-country to go to school this year? If you're hoping you might be able to claim a tax deduction for some of the expenses, you'll be disappointed.
It used to be that taxpayers could deduct moving expenses if they relocated for work reasons and met two requirements: the time test and the distance test. If you intended to work in addition to attending school somewhere far from home, you might have qualified.
But that changed when President Donald Trump signed the Tax Cuts and Jobs Act (TCJA) on December 22, 2017. The TCJA eliminated the above-the-line tax deduction for moving expenses for everyone except active-duty military who must relocate due to military orders. All other taxpayers lost this deduction starting with tax year 2018 through at least tax year 2025.
Claiming the Deduction on Prior-Year Returns
If you relocated in 2017 and qualified for a moving expense deduction, however, you can still claim those costs on your 2017 federal tax return. To do so, you will need to make changes to your filed return for tax year 2017 by using Form 1040-X to file an amended tax return.
To receive a credit or refund, you generally need to file an amended return within three years of the due date. For a 2017 tax return that would have been due April 15, 2018, you would have had to file an amended return before April 15, 2021, to receive a credit or refund.
The IRS extended the filing deadline for individual tax returns from April 15, 2021, to May 17, 2021.
The Distance and Time Tests
To meet the criteria for claiming the moving expenses deduction for prior-year tax returns, your move must pass two tests. The first is the distance test, which requires that taxpayers move at least 50 miles farther away than the distance between their old home and their new place of employment. In other words, if you currently live 10 miles from your workplace, your move must place you 60 miles from your new workplace.
You can't just take a longer route to get to your new job to make it work. The Internal Revenue Service counts the distance as the shortest route between work and home that's available to you.
Under the time test, a taxpayer must work full-time for at least 39 weeks during the 12 months following the move. If you're self-employed, you have to work full-time at least 78 weeks in the 24 months after your move.
If you're married and file a joint return, either spouse can meet the work test, and the expenses would still be deductible. The IRS allows 12 months from the time of your move to meet this test. If you didn't deduct your moving expenses on your 2017 return and later met the time test, you can file an amended return as described above.
You would have to meet both these tests to qualify to claim this deduction for the 2017 tax year.
If you deducted these expenses in 2017 but ended up not meeting the time test within 12 months of moving, you'll have to file an amended return for tax year 2017 or claim this deduction as other income on your return for the year you don't meet the test.
How These Rules Affect Students
Students can claim the moving expense deduction for tax years before 2018 if they meet both the distance and time tests, just as anyone else must do. In other words, as long as you work at your new location and don't only attend school. There's no rule that says you can't also attend school in addition to working full time. You simply must work the requisite number of full-time hours.
For example, a part-time grad student might have a full-time day job or work full-time as an independent contractor while in school. That would qualify them for the deduction. But if you work just part-time, you'll lose the deduction.
Remember that the pivotal date is when you move. For example, if you relocated between semesters in December 2017, and if you were able to arrange your schedule to work full time for 39 weeks in 2018, you would still qualify for the moving-expense deduction for the 2017 tax year, because the IRS gave you 12 months from the time of your move to meet the time test.
For students whose class schedule didn't allow for full-time work, one solution was to start their own consulting or freelance business so that they could have the flexibility to work around their school hours, as long as they met the requirements for self-employed workers.
Additional Tax Break Options
If you're a student, you still have some options for tax breaks. You might consider making use of other tax breaks designed specifically for students that are not impacted by the Tax Cuts and Jobs Act, such as the Lifetime Learning Credit or the American Opportunity Tax Credit.
Estimate your tax obligation in conjunction with either of these credits. You might realize that you're actually better off claiming one of them than you would be if you had been able to claim the moving deduction.