Solved: If breaking the lease cost more than the relocation bonus, do we have to report it?
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If breaking the lease cost more than the relocation bonus, do we have to report it?

We moved across country in November for a new job. We received $1,000 for "relocation assistance". Breaking our lease cost $5,000. Moving our stuff cost $2,600. When I put the $2,600 into turbo tax, then the $1,000 it calculates my total out of pocket expense at $1,600. But that's to assume the $1,000 went to travel. Unlike the IRS, the relocation money from the new job can be applied to whatever we want, so we want to apply it to breaking the lease. 

Is there any way to not have the relocation assistance be considered as covering the travel expenses? It seems awfully lame of the IRS to force that money to be used to cover travel expenses when there are other, bigger expenses we can't include.

Thanks!

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If breaking the lease cost more than the relocation bonus, do we have to report it?

According to IRS Publication 521, "Expenses of entering into or breaking a lease" are not deductible moving expenses.  

There is no way to allocate the $1000 to the nondeductible expense of breaking a lease.  The IRS only considers deductible moving expenses, and those expenses have to be reduced by any reimbursements received.  Any nondeductible expenses are considered personal expenses that the IRS does not take into consideration.

How you account for the reimbursement from your employer depends on whether the payment was part of an "accountable plan."  If your employer does not have an accountable plan, the $1,000 is fully taxable and included in  box 1 of your W-2.   In that case, the payment is not a reimbursement under moving expenses.  However, if the relocation assistance was given to you under an accountable plan and not included in your wages, then it is non-taxable and has to be reported against your deductible moving expenses.

In the end, allocating the assistance payment to a particular expense is not a relevant approach.  What matters is (a) the total dollar amount of deductible moving expenses, and (b) the tax treatment of the $1,000 payment from your employer.    

 Please review IRS Pub 521 for more information on deducting moving expenses.  https://www.irs.gov/pub/irs-pdf/p521.pdf

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If breaking the lease cost more than the relocation bonus, do we have to report it?

According to IRS Publication 521, "Expenses of entering into or breaking a lease" are not deductible moving expenses.  

There is no way to allocate the $1000 to the nondeductible expense of breaking a lease.  The IRS only considers deductible moving expenses, and those expenses have to be reduced by any reimbursements received.  Any nondeductible expenses are considered personal expenses that the IRS does not take into consideration.

How you account for the reimbursement from your employer depends on whether the payment was part of an "accountable plan."  If your employer does not have an accountable plan, the $1,000 is fully taxable and included in  box 1 of your W-2.   In that case, the payment is not a reimbursement under moving expenses.  However, if the relocation assistance was given to you under an accountable plan and not included in your wages, then it is non-taxable and has to be reported against your deductible moving expenses.

In the end, allocating the assistance payment to a particular expense is not a relevant approach.  What matters is (a) the total dollar amount of deductible moving expenses, and (b) the tax treatment of the $1,000 payment from your employer.    

 Please review IRS Pub 521 for more information on deducting moving expenses.  https://www.irs.gov/pub/irs-pdf/p521.pdf

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If breaking the lease cost more than the relocation bonus, do we have to report it?

Awesome, really appreciate the thorough answer RichardG! Thanks!
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