Small business owners and employees frequently ask how to safeguard relocated workers from financial loss resulting from a “forced” sale of their homes. These are some responses. Get help from a Savannah accountant today!
With various tax ramifications for the employee, there are two typical strategies to lessen the negative financial impact on relocated employees who must sell their homes:
The employer covers the employee’s financial loss. In this case, the company agreed to pay the employee the difference between the evaluated fair market value and any lower amount the employee received from the sale and had the house appraised. This reimbursement would also cover the costs of the sale for the employee.
The kind of financial loss we are discussing here differs from a tax loss. The amount the employee receives from the “forced sale” less the value of the home represents the financial loss. If certain conditions are met, an employee’s gain on a sale in which the amount received exceeds the basis results in a gain that may be tax-exempt up to a maximum of $250,000. The sale of a personal residence, however, does not qualify for a tax deduction.
The employer purchases the house. A small number of employers actually buy and sell employees’ homes. However, a lot of people do this inadvertently by effectively buying homes thanks to shifting companies that operate as employers’ agents. When choosing one of these two alternatives, known as a Guaranteed Home Sale, the employee is not subject to tax:
#1: The shifting agency purchases the house for its appraised fair market value and then resells it on behalf of the employer.
#2: The shifting company offers to purchase the home at its estimated worth; however, the worker may be able to demand a bigger sum by way of an intermediary of their choice from a list provided by the shifting company.
The following are the tax repercussions for employers:
Compensating the worker for their loss: This and any additional money paid as a gross-up are both completely deductible as business expenses. However, it can end up being more expensive, both before and after taxes, than purchasing the house through a relocation company.
As stated in the “Caution” above, paying the relocation cost solely, without purchasing the home, is likewise completely deductible, as is any gross-up amount on that fee.