How to deduct `points' and moving expenses

Mailbag

February 20, 2000

Mr. Azrael:

I moved out of a house and sold it and moved into another house. What can I deduct on my income taxes for the sale of my home and any closing costs, points and moving expenses that I incurred while moving into the new home?

Brenda Austin Baltimore

Dear Ms. Austin:

Let's talk about income tax deductions for points and moving expenses.

Borrower's often pay "points" to obtain a home mortgage. Lenders refer to these charges as loan origination fee, loan discount, or discount points. Whatever they're called, "points" constitute prepaid interest.

You can deduct points in the year they're paid only under certain circumstances. Normally, if you take out a loan to buy or build your new home, you can take the points as a tax deduction in the year you pay them. You should also be glad to know that a borrower is treated as paying any points that a home seller pays for the borrower's mortgage.

As for moving expenses, they can be deducted only if the move is closely related to the start of work. The moving expenses have to relate to the start of a new job. What's more, if you did not incur the moving expenses within one year from the date you first reported to work at the new location, you probably won't be able to deduct moving expenses.

There's also a distance requirement. You must move to a location that is closer to your new job than your old location.

According to an IRS example, you will meet the test if your old main job was three miles from your former home, and your new main job is at least 53 miles from that former home.

Finally, there's a time test. If you're an employee, you have to work full time for at least 39 weeks during the first 12 months you arrive in the general area of your new job.

If you're self-employed, you must meet the "39-week" test and also work full time for at least 78 weeks during the first 24 months after you arrive in the new job location.

You should consult your tax adviser or IRS Publication 521 to find out more about the detailed and complex moving expense rules.

Pub Date: 2/20/00

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