OBRA and NEPA change tax treatment of moving expenses and short-term assignments.

• Author: Orlando, Gregory A.
• Position: Omnibus Budget Reconciliation Act of 1993, Comprehensive National Energy Policy Act of 1992

Many individuals and businesses will face higher costs with the various tax law changes enacted by the Omnibus Budget Reconciliation Act of 1993 (OBRA), which was signed into law by President Clinton in August 1993. This article highlights the tax law changes relating to employee relocation expenses and discusses the effect on both the individual and the employer, as well as the interplay between the rules governing relocations and section 1938 of the Comprehensive National Energy Policy Act of 1992 (NEPA), which modified the treatment of away-from-home travel expenses.

Summary of OBRA Changes

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." The class of employees eligible for the moving-expense deduction remains unchanged, except to the extent the distance requirement for the move has been increased from 35 miles to 50 miles.(3) (The employee's new place of work must now be 50 miles farther from the employee's old residence than the employee's old place of work was from the employee's old residence). (See Exhibit I.)

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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.(4) Under pre-1994 law, deductions(5) were allowed for the following expenses:

* Any pre-move house-hunting and 30 days of temporary living expenses in the general location of the new job (which were deductible, prior to 1994, subject to a $1,500 cap).

* Any expenses for the sale and/or purchase of a residence or settlement and/or acquisition of a lease (which in 1993 was deductible, subject to a $3,000 cap). Sale-related expenses that are no longer deductible include real estate commissions, attorney's fees, escrow and title fees, transfer, recording and stamp taxes, and points or other loan-related charges. In addition, title insurance premiums, title fees, appraisal fees, loan origination fees, and other noninterest loan-related charges are no longer deductible.

* Any meal and entertainment expenses while moving (which were deductible in 1993).

* Any moves where the employee's new principal place of work is less than 50 miles farther from the employee's former residence than was the employee's former principal place of work. (The pre-1994 limit was 35 miles.) (See Exhibit II.)

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Exhibit III provides a comparison of the law before and after OBRA. The good news is that unreimbursed moving expenses are deductible above-the-line. Prior to 1994, these expenses, including reimbursed moving expenses, were deductible below-the-line, but without regard to the two-percent adjusted gross income (AGI) floor on miscellaneous itemized deductions. 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.

Exhibit III Moving...