Post-RRA moving expenses.

Generally, individual taxpayers are allowed to deduct moving expenses connected with the commencement of work as an employee or as a self-employed individual at a new principal place of work, with various limitations and conditions. The Revenue Reconciliation Act of 1993 (RRA) made substantive changes to the moving expense deduction. There were changes to the definition of deductible moving expenses, the distance requirement, the reporting of the deduction and the treatment of reimbursed or employer provided moving expenses. These changes are effective for moving expenses incurred after 1993.

Moving expenses that qualify for deduction continue to include the reasonable cost of moving household goods and personal effects from the former residence to the new residence plus traveling, including lodging but excluding meals, from the former residence to the new residence. Reasonable expenses are those reasonable under the circumstances of the particular move. Expenses exceeding a reasonable amount are not deductible. Generally, moving and travel must be by the shortest and most direct route available from the old to the new residence "by the conventional mode or modes of transportation actually used and in the shortest period of time commonly required to travel the distance involved by such mode" (Regs. Sec. 1.217-2(b)(2)(i)).

Besides meals, various previously deductible moving expenses no longer qualify for deduction. Costs of premove househunting trips and temporary living expenses at the new location are no longer deductible. Expenses connected with buying or selling a home (or certain lease expenses), such as legal fees, title charges, real estate commissions, appraisal fees and similar expenses are also no longer deductible.

To qualify for the moving expense deduction, the taxpayer must be employed full time for a minimum of 39 weeks during the 12-month period immediately following the arrival in the new location. Self-employed individuals must meet this 39-week test, as well as perform self-employed services full time for a minimum of 78 weeks during the 24-month period following arrival in the new location.

In addition, the distance between the taxpayer's former residence and the new principal work place must be at least 50 miles further than the distance between that residence and the taxpayer's old principal work place. If there was no old principal work place, the new principal work place must be at least 50 miles from the former residence. The distance between two points must be the shortest of the more commonly traveled routes between these points.

Example: was employed by X Corporation, whose office was located in the Chicago Loop. J lived in Lincoln Park, a neighborhood three miles north of his office. J learned of an opportunity with Y Company in downtown Milwaukee. He resigned from X and accepted the position with Y. J from moved from Lincoln Park to Milwaukee's west side. His move meets the distance test since downtown Milwaukee is more than 53 miles from Lincoln Park.

Note: Before the RRA, this mileage requirement was based on 35 miles.

While the deductibility of moving expenses was severely limited, the RRA did contain changes favorable to taxpayers. Unreimbursed moving expenses now are deductible in arriving at adjusted gross income; thus, non-itemizers can claim this deduction. Previously, these expenses were allowable only as itemized deductions.

In addition, new rules apply to employer reimbursements (including payments made directly to a third party and services furnished in kind) for moving expenses incurred after 1993. These rules do not apply to reimbursements made after 1993 for moving expenses incurred before 1994 or to reimbursements made before 1994.

Under new Sec. 132(g), employer reimbursements of an employee's moving expenses are treated as a fringe benefit. Therefore, they are excludible from the employee's gross income and wages if - the expenses would be deductible by the employee if he had directly paid or incurred the expenses, and - the employee did not deduct the expenses in a prior year. According to Ann. 94-2, the reimbursements should be made under rules similar to those relating to an accountable plan.

Reimbursements made in 1994 that qualify as an excludible fringe benefit are not reported in Box 1 of the 1994 Form W-2, but must be reported in Box 13 and identified by code "P."

Reimbursements made after 1993 for moving expenses incurred after 1993 that do not qualify as an excludible fringe benefit are included in the employee's wages.