Examples of Tax-Deductions
Tom Smith is married and has two children. He owned his home
in Detroit where he worked. On February 8, his employer told
him that he would be transferred to San Diego as of April
10 that year. His wife, Peggy, flew to San Diego on March
1 to look for a new home. She put a down payment of $25,000
on a house being built and came back to Detroit on March 4.
The Smiths sold their Detroit home for $1,500 less than they
paid for it. They contracted to have their personal effects
moved to San Diego on April 3. The family drove to San Diego
where they found that their new home was not finished. They
stayed in a nearby motel until the house was ready on May
1. On April 10, Tom went to work in the San Diego plant where
he still works.
His records for the move show:
||Travel and lodging
||Down payment on
San Diego home
||Real estate commission
paid on sale of Detroit home
||Loss on sale of
Detroit home (not including real estate commission)
||Amount paid for
moving personal effects (furniture, other household
||Expenses of driving
to San Diego:
||Mileage (Start 14,278; End
16,478) 2,200 miles at 10 cents a mile
||Cost of temporary
living expenses in San Diego:
Tom was reimbursed $10,599 under an accountable plan as follows:
|Moving personal effects
|Travel (and lodging) to San
|Travel (and lodging) for househunting
|Lodging for temporary quarters
|Loss on sale of home
Tom's employer gave him a breakdown of the amount of reimbursement.
The employer included this reimbursement on Tom's Form W-2
for the year. The reimbursement of deductible expenses, $7,200
($6,800 + $400) for moving household goods and travel to San
Diego, was included in box 13 of Form W-2. His employer identified
this amount with code P.
The employer included the balance, $3,399 reimbursement of
nondeductible expenses, in box 1 of Form W-2 with Tom's other
wages. He must include this amount on line 7 of Form 1040.
The employer withholds taxes from the $3,399, as discussed
under Nondeductible expenses, earlier. Also, Tom's
employer could have given him a separate Form W-2 for his
Tom figures his deduction for moving expenses as follows:
|Item 5, moving personal effects (line 1)
|Item 6, driving to San Diego ($220 + $180)
|Total deductible moving expenses (line
|Minus: Reimbursement included in box 13
of Form W-2 (line 4)
|Deduction for moving expenses (line
Tom enters these amounts on Form 3903 to figure his deduction.
His Form 3903 and Distance Test Worksheet are shown
later. He also enters his deduction, $1,200, on line 26, Form
Nondeductible expenses. Of the $42,974 expenses that
Tom incurred, the following items cannot be deducted.
- Item 1, pre-move househunting expenses.
- Item 2, the down payment on the San Diego home. If any
part of it were for payment of deductible taxes or interest
on the mortgage on the house, that part would be deductible
as an itemized deduction.
- Item 3, the real estate commission paid on the sale of
the Detroit home. The commission is used to figure the gain
or loss on the sale.
- Item 4, the loss on the sale of the Detroit home. The
Smiths cannot deduct it even though Tom's employer reimbursed
him for it.
- Item 6, the meals expenses while driving to San Diego.
(However, the lodging and car expenses are deductible.)
- Item 7, temporary living expenses.
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