Moving Expenses(p31)

If you moved to a new home in 2010 because of your job or business, you may be able to deduct the expenses of your move. Generally, to be deductible, the moving expenses must have been paid or incurred in connection with starting work at a new job location. See Publication 521 for a complete discussion of the deduction for moving expenses and information about moves within the United States.

A foreign move is a move in connection with the start of work at a new job location outside the United States and its possessions. A foreign move does not include a move back to the United States or its possessions.

When your new place of work is in a foreign country, your moving expenses are directly connected with the income earned in that foreign country. If you exclude all or part of the income that you earn at the new location under the foreign earned income exclusion or the foreign housing exclusion, you cannot deduct the part of your moving expense that is allocable to the excluded income.

Also, you cannot deduct the part of the moving expense related to the excluded income for a move from a foreign country to the United States if you receive a reimbursement that you are able to treat as compensation for services performed in the foreign country.

The moving expense is connected with earning the income (including reimbursements, as discussed in chapter 4 under Reimbursement of moving expenses) either entirely in the year of the move or in 2 years. It is connected with earning the income entirely in the year of the move if you qualify for the foreign earned income exclusion under the bona fide residence test or physical presence test for at least 120 days during that tax year.

If you do not qualify under either the bona fide residence test or the physical presence test for at least 120 days during the year of the move, the expense is connected with earning the income in 2 years. The moving expense is connected with the year of the move and the following year if the move is from the United States to a foreign country. The moving expense is connected with the year of the move and the preceding year if the move is from a foreign country to the United States.

To figure the amount of your moving expense that is allocable to your excluded foreign earned income (and not deductible), you must multiply your total moving expense deduction by a fraction. The numerator (top number) of the fraction is the total of your excluded foreign earned income and housing amounts for both years and the denominator (bottom number) of the fraction is your total foreign earned income for both years.

On November 1, 2009, you transfer to Monaco. Your tax home is in Monaco, and you are a bona fide resident of Monaco for the entire tax year 2010. In 2009, you paid $6,000 for allowable moving expenses for your move from the United States to Monaco. You were fully reimbursed (under a nonaccountable plan) for these expenses in the same year. The reimbursement is included in your income. Your only other income consists of $16,000 wages earned in 2009 after the date of your move, and $97,600 wages earned in Monaco for 2010.

Because you did not meet the bona fide residence test for at least 120 days during 2009, the year of the move, the moving expenses are for services you performed in both 2009 and the following year, 2010. Your total foreign earned income for both years is $119,600, consisting of $16,000 wages for 2009, $97,600 wages for 2010, and $6,000 moving expense reimbursement for both years.

You have no housing exclusion. The total amount you can exclude is $106,525, consisting of the $91,500 full-year exclusion for 2010 and a $15,025 part-year exclusion for 2009 ($91,400 times the fraction of 60 qualifying bona fide residence days over 365 total days in the year). To find the part of your moving expenses that is not deductible, multiply your $6,000 total expenses by the fraction $106,525 over $119,600. The result, $5,344, is your nondeductible amount.

If you move between foreign countries, your moving expense is allocable to income earned in the year of the move if you qualified under either the bona fide residence test or the physical presence test for a period that includes at least 120 days in the year of the move.

If your new place of work is in the United States, the deductible moving expenses are directly connected with the income earned in the United States. If you treat a reimbursement from your employer as foreign earned income (see the discussion in chapter 4), you must allocate deductible moving expenses to foreign earned income.

These expenses are attributable to work you do during the year in which you incur the storage expenses. You cannot deduct the amount allocable to excluded income.

If your moving expense deduction is attributable to your foreign earnings in 2 years (the year of the move and the following year), you should request an extension of time to file your return for the year of the move until after the end of the second year. By then, you should have all the information needed to properly figure the moving expense deduction. See Extensions under When To File and Pay in chapter 1.

If you do not request an extension, you should figure the part of the moving expense that you cannot deduct because it is allocable to the foreign earned income you are excluding. You do this by multiplying the moving expense by a fraction, the numerator (top number) of which is your excluded foreign earned income for the year of the move, and the denominator (bottom number) of which is your total foreign earned income for the year of the move. Once you know your foreign earnings and exclusion for the following year, you must either:

• Adjust the moving expense deduction by filing an amended return for the year of the move, or
• Recapture any additional unallowable amount as income on your return for the following year.

If, after you make the final computation, you have an additional amount of allowable moving expense deduction, you can claim this only on an amended return for the year of the move. You cannot claim it on the return for the second year.

Report your moving expenses on Form 3903. Report your moving expense deduction on line 26 of Form 1040. If you must reduce your moving expenses by the amount allocable to excluded income (as explained later under How To Report Deductions), attach a statement to your return showing how you figured this amount.

For more information about figuring moving expenses, see Publication 521.