October 13, 2016

Foreign Moving Expenses for a Missionary

Question:

A husband and wife moved overseas in order to begin work with an orphanage. Can they take the moving expenses deduction?
 
Answer:

According to IRS Publication 521, "To deduct expenses for a move outside the United States, you must move to the area of a new place of work outside the United States and its possessions. [First,] you must meet the [general] requirements under Who Can Deduct Moving Expenses." 

"Who Can Deduct Moving Expenses" Requirements
  • First is the distance test. The publication states, “Your move will meet the distance test if your new main job location is at least 50 miles farther from your former home than your old main job location was from your former home” (see Publication 521 for specific examples). 
  • Second is the time test. The general rule is that one must work at the new job location for 39 weeks of the first 12 months (see publication for specific rules for employees vs. self-employed individuals). 
  • Third is the relation to work test. The rule is that "your move must be closely related, both in time and in place, to the start of work at your new job location" (IRS Publication 521).
Next, if the three above requirements are met the missionary maybe able to deduct moving expenses to a job location outside the U.S., but only against income that is not already excluded under the Foreign Earned Income Exclusion. According to IRS Publication 54, "When your new place of work is in a foreign country, your moving expenses are directly connected with the income earned in that foreign country. If you exclude all or part of the income that you earn at the new location under the foreign earned income exclusion or the foreign housing exclusion, you cannot deduct the part of your moving expenses."

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