Itemize Moving Costs to Receive Deduction : Managing Money
QUESTION: My family and I will be moving soon to San Francisco, where I have taken a new job. Are moving expenses still deductible on federal income taxes? N. E.
ANSWER: Yes, but only if you itemize your deductions and if you complete and file Form 3903, “Moving Expenses,” with your tax return. Formerly, moving expenses were considered an “adjustment to income” on Form 1040, and the deduction was available to all taxpayers. Now it is available only to those who itemize their deductions.
In addition, your move must meet certain requirements for your expenses to be deductible. First, the new job must be located at least 35 miles farther from your present house than your old job. In addition, you must work full time for at least 39 weeks during the 12 months following the move. If you are self-employed, you must work at least 78 weeks during the next two years.
Form 3903 offers a good list of deductible expenses. The cost of travel and lodging en route to the new job is 100% deductible; the cost of meals is 80% deductible. If your move involves driving, you may claim an automobile expense of 9 cents per mile.
Further, your full cost of travel and lodging while house hunting is deductible, along with 80% of your meal costs. Lodging costs for up to 30 consecutive days after starting a new job but before moving into a new house are fully deductible. Meals during that 30-day period are 80% deductible. However, the maximum allowable deduction for the period of your house hunting and pre-move lodging is $1,500.
You may also deduct the costs related to buying a new house, such as inspections, and for selling the old one. However, the total expenses of your move--including house hunting, waiting, buying and selling expenses--cannot exceed $3,000.
The total deduction, once calculated on Form 3903, is transferred to Schedule A, where it becomes part of the total that you claim as itemized deductions.
Q: When I give stock that I have owned for many years to a recognized charitable organization, what do I use as the value of my contribution when I complete my income taxes? Is is the present value of the shares or the original price I paid for them?--M. A. G.
A: Under most circumstances, the donor is entitled to use the full market value on the date the gift is made as the value of the tax deduction. However, there are some notable exceptions to this rule, and they tend to have the greatest effect on the very people most likely and capable of making gifts of the type you describe.
According to the latest revisions to the tax code, taxpayers who are required to pay an “alternative minimum tax”--you may read this to mean certain high-income taxpayers--may only claim the original cost of the stock as a tax deduction. Further, taxpayers who are not subject to the AMT may claim charitable tax deductions only up to 30% of their adjusted gross income during any given year. However, they may carry over the balance of the contributions and deduct it on their taxes for five years.
So, if you are subject to the alternative minimum tax, you might want to reconsider the wisdom of giving shares of a stock that has appreciated greatly to your favorite charity. Experts say a more prudent alternative might be giving cash, which is fully deductible. However, in any case you should probably consult your tax accountant or attorney to analyze your tax position before you make any gift. Increasingly in today’s tax climate, taxpayers need to understand their potential tax obligations before they fully appreciate the benefits of charitable contributions and other tax-deductible maneuvers.
Q: In a recent column you discussed some of the rules for giving real estate as a gift. I don’t understand what you meant when you wrote that the recipient does not get any credit for the gift tax paid by the donor on the historical cost of the property. Please explain.--B. L. F.
A: We’ll try again. And you might also want to read Section 1015(d)(6) of the Internal Revenue Code.
The question to which you are referring dealt with the tax basis of real estate given as a gift. (The tax basis is used to determine the amount of tax owed when the property is sold. The basis is subtracted from the sales price to produce the taxable gain.)
Bruce S. Ross, an estate planning attorney with the Los Angeles office of Morrison & Foerster, explained that the recipient’s tax basis is the donor’s cost, the value of any improvements plus any gift tax paid on the real estate’s appreciation. The recipient’s tax basis does not include any gift tax paid on the historical cost of the property.
Here’s how it would work: A donor, who has exhausted his $600,000 lifetime exemption from gift tax, pays $100,000 for a piece of property. When he gives it to his grandson, the property has a market value of $150,000. Because any individual is allowed to give another individual $10,000 every year without paying a gift tax, Grandpa is liable for gift taxes on $140,000 and will pay about $51,800 in taxes. Now, one-third of that tax (or $17,267) is attributable to the $50,000 that the property appreciated in value while Grandpa held it. The grandson’s tax basis in the property will be $117,267--the original purchase price, plus the gift tax applicable to the property’s appreciation.
Carla Lazzareschi cannot answer mail individually but will respond in this column to financial questions of general interest. Please do not telephone. Write to Money Talk, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, Calif. 90053.
