Taking It With You

Here's how to maximize your tax breaks when you move.
Author:
Publish date:

Moving your family is never easy. But for some reason, many parents have the false notion that it's easier to move a child during the sun-dappled days of summer than to yank him out of school and move in a grayer season.

Parents, heed the words of a woman who was forced to move twice during the summer months of her youth. I still live with the scars.

Even with that warning, many families will move this summer. So if you must, beware not only of your child's mental health but of the surrounding tax implications.

Recover Some Expenses

Angry kids aside, you may actually be able to deduct any out-of-pocket moving expenses if you're moving because of your job. Anything your employer reimburses you for is not deductible.

To be able to deduct anything, you have to meet a few quirky IRS rules.

The first says that your new job must be at least 50 miles farther from your old home than your old job was. Huh? Example, please! If your old job was three miles from your old home, your new job must be at least 53 miles from your old home.

The next bizarre rule says you must work at the new location for at least 39 weeks, during the first 12 months. (Who makes this stuff up?)

Assuming you qualify, you can then deduct the cost of moving you, your family and your belongings from location A to location B. Bear in mind that only the unreimbursed costs associated with the actual move are deductible. If you took trips back and forth to your new location to scout out housing prospects or open a bank account, forget deducting the costs of those trips.

The good news is that moving expenses are reported on line 29 of your Form 1040, and there's no limitation on the amount you can deduct. So tally all your out-of-pocket costs. And be sure to check out

IRS Publication 521 -- Moving Expenses

for more grist.

Out With the Old

Considering the current crazy housing market, we'll assume you were able to sell your old house for a substantial gain. Good for you. Even better, you may not have to pay tax on that gain if you meet a few (more!) tax rules.

Under the current law, if you owned and lived in your home as your principal residence for two of the five years prior to the sale, you would not owe tax on the first $250,000 in gain as a single person, or $500,000 as a married couple.

To figure out that gain, you must subtract your basis from the selling price. Your basis is your purchase price of the home plus the cost of any major home improvements. Repairs don't count.

That means if you fixed old windows or a leaky roof, you can't include those costs. But if you put in a new patio or beefed up the landscaping, those expenses increase the value of your home and should be added to your basis. Remember, the higher your basis, the lower your gain. So start tallying those home improvements.

In With the New

With all the innovative mortgage products out there these days, don't be surprised if you're asked to pay points on your new mortgage. Points are just extra charges you can opt to pay up front to get a lower interest rate on your mortgage. Points may also be called loan origination fees, maximum loan charges, loan discount or discount points.

You can deduct all the points you paid on

Schedule A -- Itemized Deductions

in the year you got the loan. But if you happen to be in a situation in which it would be more beneficial to hold off on that deduction, you can elect to amortize those points over the life of the loan. Thatmeans you deduct a piece each year. So if you paid $1,000 in points on a 10-year loan, you can deduct $100 each year.

Then keep track of all your closing costs. Items such as legal fees, transfer taxes and title insurance can all be added to your basis and could help your tax situation when you decide to sell the place.

Note that some costs are just sunk. Things like fire insurance premiums, rent for occupying the home before closing, loan assumption fees, the cost of a credit report and the fee for an appraisal required by a lender are all lost.

Send Uncle Sam a Change of Address

Finally, be sure to let the government know you moved. Fill out the appropriate forms with your post office so that your tax documents are forwarded to you and then file

Form 8822 -- Change of Address

with the IRS so that Uncle Sam knows where to find you.

Good luck with your summer move. Keep track of all your receipts and home-closing documents so that you have support for everything come tax time. And while you may be tickled pink about your new house and location, please don't brush aside the feelings of your teenager, who is now separated from her summer love. (God, was he cute.)