THE NATION’S HOUSING : Bill Will Limit Deductions for Moving for Job

Thousands of middle-income home owners and renters face sizable tax increases next year if a little-publicized provision of the pending 1992 federal tax bill becomes law.

Already approved by the House, the bill would limit deductions for the expenses of job-related moves by households to $5,000. Under current law, there are deduction limits on specific expenses related to household moves, but no overall dollar cap.

The Census Bureau estimates that between 17% and 18% of all American households move every year. Tax experts say that about 1 million families a year fit the Internal Revenue Service’s requirements for deducting all or portions of the costs of their relocations--expenses that commonly run to $10,000 to $15,000 or more.

The new limit would apply to both employer-mandated moves as well as household relocations intended simply to find new jobs. Moves to foreign countries would come under the same $5,000 cap as domestic relocations.

Asked for the rationale behind the proposed new cap, a House Ways and Means Committee source summed it up with one word: money.

“It raises a whole lot of revenue,” the source said, “and we need it to pay for other (revenue-losing provisions)” in the 1992 tax bill. “It’s like what Willie Sutton said about why he robbed banks: It’s where the money is.”

The household moving-deduction limit would indeed raise big bucks, according to House estimates: $3.5 billion in new revenue during its first five years. Most of that tax increase will be borne by the households most likely to move for employment-related reasons--home owners holding mid-level positions in private companies and government agencies, according to estimates prepared by the relocation industry trade group, the Employee Relocation Council (ERC).

The average annual salary of employees moved by their firms, according to ERC data, is $45,000.

“In a year when the politicians are all making speeches about helping middle-income families,” said ERC Executive Vice President H. Cris Collie, “what do they do? They turn around and stick it to middle-income taxpayers who have no idea they’re going to be victims. They don’t know it unless they know they’re going to move next year.”

The financial impact of the new deduction limit is illustrated by the situations of two families relocated by their firms in recent months. The firms involved are ERC members and supplied the actual costs of the moves, but altered the names of the employees to protect their privacy.

In one case, “Bob,” a mid-level executive in his 30s, earned $55,000 last year. His company transferred him, his wife and two children from Tulsa, Okla., to Houston. The costs of his move included $481 for one house-hunting trip to Houston, $1,270 for hotel and temporary rental expenses, $7,347 for shipping household goods, $2,080 in fees and other expenses involved in his home purchase, plus $293 for meals and travel to the new location.

Under current tax provisions, Bob’s firm can reimburse him for all of those moving-related expenses--a total of $11,471. At tax time, Bob must report that money as additional income. But he can deduct $10,640 of it as a job-related moving expense, using federal tax regulations now in effect.

Under the pending 1992 tax bill, by contrast, Bob would lose $5,640 in deductions ($10,640 minus the $5,000 cap.) In his 28% tax bracket, the out-of-pocket tax increase to Bob and his family would be $1,579.

A second case involves “Mike” and “Judy.” To preserve Judy’s $48,000 job, the couple agreed to transfer to another location 400 miles away. The expenses of their move included $2,132 for multiple house-hunting trips, $2,455 in temporary rentals, $9,522 to move household goods, and $2,297 in miscellaneous home purchase expenses. The company reimbursed them $16,406 to cover their relocation costs, and the couple must report that as additional income.

Under current federal tax rules, $12,522 of those expenses qualify for deduction. Under the proposed new rules, Mike and Judy would be limited to just $5,000 in deductions, and face additional federal taxes of $2,106 ($7,522 additional income, 28% tax bracket).

Pushed by House Ways and Means Committee chairman Rep. Dan Rostenkowski (D-Ill.), the $5,000 cap heads for Senate consideration later this month. Capitol Hill tax experts rate its chances for passage as strong for two reasons: Its prodigious revenue-raising feature and its presence in a bill containing major tax goodies for most real estate lobbies.

Despite its direct impact on individual home owners, renters and home sales, said one lobbyist for a real estate trade group, “We’re not going to go against it. We don’t see it as a priority issue, in view of what else is on the table.”

What else is at stake, the lobbyist noted, is the real estate industry’s longtime wish list: Relief from “passive-loss” tax rules, extension of low-income housing tax credits and tax-exempt bond assistance for housing. All are contained in the House-passed tax bill, all cost money and all have heavy support in the Senate.

“Hey,” said one Capitol Hill tax expert, “it’s a jungle up here. Somebody’s got to get eaten. Somebody’s got to pay.”

If you’re a potential mover any time in the next several years, he could be talking about you.