Lease Cancellation Fees in a Move Are Not Deductible

When you move more than a set distance because of a new job or business, you are entitled to deduct certain moving expenses. These costs are deductible regardless of whether you itemize your other personal deductions. However, not every move-related expense is deductible.

In one recent case, a family relocated when a husband’s employer reassigned him from Phoenix, Arizona, to Pasadena, California, in one year, and then from Pasadena to Santa Monica the next year. He paid lease cancellation fees to get out of his apartment leases in each location and deducted these fees with other moving expenses.

The IRS disallowed the lease cancellation fees, and the Tax Court agreed with the IRS. Lease cancellation fees on an apartment used solely for personal purposes are nondeductible personal expenses.

Note: Had the apartment been used partially for business (e.g., a home office), a portion of the fees could be treated as a deductible business expense.

Source: Darren J. Newell, TC Summary Opinion 2012-57