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A friend relocated and is concerned about how her employer handled the expenses.

The expenses included costs of selling her old home, interest reimbursements, cost to move household goods, and temporary living expenses. The employer included the amounts of these payments in her W-2 as income, even though most were paid by the company or by a relocation company. They did gross up those amounts for the taxes, but say she cannot deduct any of it except the interest.

Questions:
1. I thought the point of using a relocation company was to avoid the tax consequences. Are the closing costs paid by her employer to the relocation company (and by the relocation company to the real estate agent, etc.) really taxable income? The relo company owned the house at the time it sold - they closed with her 2 days before the closing with the buyer.

2. Shouldn't the moving expenses be deductible on 3903?

3. Can temp living expenses be deducted on 3903?

4. If the employer has done it incorrectly and won't fix it, what should she do?

5. Any other advice or comment is most welcome.

Thanks!!
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A friend relocated and is concerned about how her employer handled the expenses.

For starters your friend should read the Reimbursements section of Publication 521.

The expenses included costs of selling her old home, interest reimbursements, cost to move household goods, and temporary living expenses. The employer included the amounts of these payments in her W-2 as income, even though most were paid by the company or by a relocation company. They did gross up those amounts for the taxes, but say she cannot deduct any of it except the interest.

They're wrong. See the allowable expenses section of Publication 521.

Questions:
1. I thought the point of using a relocation company was to avoid the tax consequences.


No, the point of using a relocation company is to avoid the hassles of moving, which are many.

Are the closing costs paid by her employer to the relocation company (and by the relocation company to the real estate agent, etc.) really taxable income?

Yes. The cost of selling your home used to be an allowable moving expense, but it hasn't been for years.

The relo company owned the house at the time it sold - they closed with her 2 days before the closing with the buyer.

Doesn't matter.

2. Shouldn't the moving expenses be deductible on 3903?

AFIK (I haven't looked at it in a while) the only expense you mentioned that is deductible as a moving expense is the moving of the household goods. Details are in Publication 521 and the instructions for Form 3903.

3. Can temp living expenses be deducted on 3903?

I'm pretty sure not, but by now you know where the answer is.

4. If the employer has done it incorrectly and won't fix it, what should she do?

It sounds like the employer used a nonaccountable plan, a term your friend will understand after reading Pub 521. There's nothing wrong with that. It results in slightly more tax (FICA and Medicare on the allowable expenses), but it's tons easier for the employer. Nothing wrong with it from a tax standpoint.

Phil Marti
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3. Can temp living expenses be deducted on 3903?

I believe only one night hotel stay before the move (because everything in old household has been moved out) and one night hotel stay at your new location is an allowable expense. But that's it as far as temporary living expenses.
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