While a proposal to change the qualification period to obtain the home sale exclusion from two out of five years to five out of eight years was not enacted, eliminating moving expense deductions
, capping mortgage interest, and limiting property tax deductions may make the cost of selling the old home more significant.
As a result of OBRA, effective in 1994, moving expense deductions are allowed only for the reasonable costs of moving household goods and personal effects from the former residence to the new residence, and for traveling (including lodging during the period of travel but excluding meals) from the former residence to the new place of residence.
Because of the change, moving expense deductions will effectively become available for state tax purposes in States that begin with federal adjusted gross income in computing state taxable income.
Under pre-OBRA rules, businesses were required to include all moving expense reimbursements in the employees' gross income and to give each employee a copy of Form 4782, detailing the amount of reimbursements of moving expenses, to assist the employee in claiming moving expense deductions in respect of amounts that had been included in the employee's income.
OBRA(1) has substantially modified the employmentrelated moving expense deduction, both by restricting the expenses that qualify(2) and by moving the deduction "above the line.
Fees associated with moving personal effects into a state, such as automobile impact fees, may be deductible based on a revenue ruling which allowed as a moving expense deduction the excise tax imposed by Puerto Rico on the introduction of a second automobile into the island by a taxpayer moving there from the U.
The taxpayer will have a choice of using house selling expenses for the moving expense deduction or to adjust the proceeds for computation of gain or loss on the sale of the former residence.
For tax years beginning with 1994, the moving expense deduction, stripped of its indirect expenses and meal expenses disallowed after 1993, moves from an itemized deduction to a deduction for adjusted gross income (AGI).
For purposes of illustration, the reimbursement and moving expense deduction are shown separately.
For 1993 the married filing joint taxpayer would have a tax liability of $15,803 and for 1994 a liability of $14,858--a reduction of $945 that is directly attributable to treating the moving expense deduction as a deduction for AGI.
Table 1 1993 1994 Gross income other than moving $108,450 $108,450 expense reimbursement Moving expense reimbursement 15,000 11,900(*) Moving expense deduction in 1994 <11,900> AGI 123,450 108,450 Itemized deductions: Medical $10,000 less 7.