Permanent Change of Station season is coming, with all the additional expenses of a military move. Thankfully, military allowances such as Dislocation Allowance, temporary lodging allowances, Mileage in Lieu of Transportation, and per diem will cover most of the costs you will incur.
But what if those allowances don’t cover all your expenses? A special section of the US tax law allows active duty military members who move on PCS orders to deduct unreimbursed moving expenses from their federal income taxes. But you can’t just deduct everything you spend during the move.
But first, a disclaimer: This information is provided for your education and is not tax advice. Use this information to guide your own learning, possibly with a qualified tax professional like an Enrolled Agent.
IRS Form 3903 lets you report and calculate your deductible moving expenses. It’s a remarkably simple form, but the instructions aren’t as clear as they could be. The deductible amount is then listed on Line 14 of Schedule 1 of the 1040 Income Tax Return.
This makes the deduction “above-the-line” or included before you get to the total tax section. Above-the-line deductions are more valuable than itemized deductions for two reasons. First, above-the-line deductions don’t require that you itemize deductions in order to benefit. Second, above-the-line deductions lower your Adjusted Gross Income (AGI), which affects eligibility for other credits and deductions, such as the Earned Income Credit and child tax credits. (For those of you wondering what “line” we’re talking about when we say “above-the-line” deductions, it’s the line that lists Adjusted Gross Income.)
“It seems simple enough to deduct moving expenses, but I've seen a lot of mistakes by both DIY taxpayers and tax professionals. Just because it seems to be a perfectly reasonable moving expense doesn't mean it is a qualifying expense.”
You can only deduct expenses that the IRS deems to be “reasonable” and “necessary.”
You may deduct the unreimbursed portion of these expenses:
It’s important to account for the allowances you get from the military. There’s a space on the form to show the amounts you were paid, and they get deducted from your actual expenses. The amount will be shown on your W-2, in Box 12, with a Code P. If you did a Personally Procured Move, you will also need to download your “travel W-2” from MyPay.
There are two main things that seem like you should be able to deduct them, but you can’t.
Other things that specifically may not be deducted, regardless of why you moved or what situation caused the expense:
While it might seem hard to figure out what is and is not deductible, there are tools to help. Zeigler says, “I recommend not just answering the tax software questions, but also going through the Form 3903 instructions line by line.”
If you are not sure whether something can be deducted, the IRS provides a tool to help you determine which expenses are deductible. It doesn’t include everything you can imagine, but it is a great start if you’re not sure and hits on many common expenses.
If you have a military move that involves a lot of unreimbursed expenses, the moving expense deduction can help offset some of those costs. The rules are tricky, but the results are worth it!
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