Discussion:Free Rent--- Taxable?
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Discussion Forum Index --> Tax Questions --> Free Rent--- Taxable?
| 5 May 2008 | |
| Client owns many buildings (in a partnership) and a one family house (personally).
Client wants a super to live in the one family house which is near the buildings. (One Family House is owned by client personally and not owned by the real estate partnership) Client was gonna give the house for free (rent) and then deduct the FMV of the rent from his paycheck. Is this barter ok? Does the employer have to collect rent from super and pay him and incur payroll taxes or is the exchenage a good tax free exchange? | |
| 5 May 2008 | |
| FMV needs to be included in payroll. FMV plus employee share of payroll taxes you pay will be included as gross wages on W-2 form at end of year. | |
| 5 May 2008 | |
| I have seen many times in the past where a real estate operator will give his 'super' free rent as a 'fringe' benefit and not report on W-2 as income and not subject the employer or super to FICA or income taxes. U sure about that above?? | |
| 5 May 2008 | |
| If the super's residence is on the employer's premises (it is) and for the employer's convenience (for example, if the tenants can call the super if the heat goes out in the middle of the night and get rapid help), and the super is required to live there as a condition of employment, then the value of the rent is excludable as a fringe benefit. | |
| 5 May 2008 | |
| But the employer owns the single family home personally and not in the partnership's name. The house will be depreciated on his sched E. This will make a diff no? Could the indiv rent it (at FMV) to the management company (which he is a minority partner on) and then have the mgmt compnay rent it for free to the super? (self rental rule disqualification ??)
Mgmt company will pick up an expense and the indiv will pick up income? We r trying to save the FICA taxes here as well as Income taxes for the Super. | |
| 7 May 2008 | |
| It looks like you have legal issues here as well as tax issues. If I read this right, there are 3 entities (indiv, ptrship & mgmt co). I think your client needs to discuss this with tax attorney. | |
RoyDaleOne (talk|edits) said: | 7 May 2008 |
| You can rent the house to the partnership. Then see Larousse's comments above. | |
| 8 May 2008 | |
| Does that work? Owner would receive income, but the intent is to have the super live rent-free.
I agree with Larousse, but I'm not clear who the employer is..the partnership..the management co? | |
TheTinCook (talk|edits) said: | 8 May 2008 |
| Under ยง119, it doesn't matter who owns the house. The partner can make the house available for rent or use to the partnership, management co, or whoever while retaining ownership.
The only issue is if the house can be considered part of the business premises. Traditionally, it's been narrowly construed. For instance, and factory providing housing to it's maintainance people would have to locate the living quarters in its facility. They couldn't rent a town house elsewhere in town. However, it's a different fact pattern from a rental real estate concern, letting it's super live in one of it's rental houses near it's other rental properties. It'd be a slam dunk if he'd be living in an apartment in an apartment complex he managed. I, like Larousse, say to go for it. The owner wouldn't necessarily have income from this. | |
| 8 May 2008 | |
| What I advised the client to do is............
.... to have the management company operate the property for him. He will enter into a formal management agreement and actually pay a small management to the management company. If they finad a tenant great, if not, then he can still deduct depr and amort and all prop expenses bec it is in a rentable condition and available for rental. Once the mgmt company is running the property for him, they may place in there any tenancy they want as well as thier super who in turn would reside there bec he manages other properties for this company nearby. Being that it is a one family house, the only tenant the company will put in there is there own super. In theory, the super should pay rent to the owner, but being that he is employed by mgmt company and the mangmt agreement will state that mgmt company staff may reside on prop rent free......the owner does not have to pick up any income. End of the day: My client who owns the single family home should be able to deduct the fees paid to mgmt company and also the depreciation and amort expenses that he incurrs bec the property is 'rentable' and available for rental. | |
| 8 May 2008 | |
| "will state that mgmt company staff may reside on prop rent.."
I believe that this should say must reside - to qualify for tax free housing I believe it must be required for the job. | |
| 12 August 2008 | |
| Another situation. Client owns a majority of units in a condominium project and is also a director on the board of the Homeowners Association (HOA). As a condition of employment, HOA requires a building manager employee who also does maintenance and janitorial to live on site for the convenience of residents and HOA. Client rents one unit to HOA who in turn offers salary and / plus unit to employee. Salary is taxable, but is free rent not taxable? | |
