Eliminate their Concern…and Reduce Your Taxes with a Professional Home Sale Assistance Program
There are a multitude of factors to consider when relocating for a new job. If your candidate is a homeowner, chances are the stress of selling a home and moving is the biggest factor influencing their decision. It is customary practice for companies to offer some level of financial assistance to a relocating employee by way of a signing bonus to cover their expenses. It shows support and acknowledgement of the inconvenience. But it is also taxable.
If your company is looking for a way to minimize costs and still remain competitive in your talent recruitment efforts, then you should take a closer look at a company-sponsored home sale program for your relocating employees. These programs alleviate the burden of the home selling or purchase process for the relocating employee. The most common type of home sale program is the Buyer-Value Option, or BVO. And it is tax protected.
What You Should Know
The Tax Cuts and Jobs Act passed on December 22, 2017, eliminating tax-protected status for many relocation-related benefits. Thankfully, tax-protected home sale programs were not affected. A properly designed and executed home sale program can save an employer hundreds of thousands of dollars annually by negating taxable reimbursements to employees.
The IRS classifies any direct reimbursement of home sale closing costs as taxable income to a relocating employee. On a $300,000 home the tax impact to the employee would be approximately $13,000. In the absence of a tax-protected home sale program, employers would pay this tax bill for their employee in the form of a gross-up.
Over the past fifteen years, the percentage of corporations using a tax-protected home sale program has steadily increased as more employers become aware of this option that eliminates the tax impact to the employee and reduces gross up costs for the employer. According to a recent survey conducted by the Worldwide Employee Relocation Council, 90% of US corporations now use a tax-protected home sale program to negate such gross-up expenses and provide their employee a stress-free relocation experience.
All the Tax Savings with Limited Risk
The BVO program eliminates the need for tax assistance (gross-up) by avoiding taxable reimbursements of commissions and other home sale closing costs. The home sale program creates two separate transactions: one where the transferee sells their home to a relocation management company (RMC), and the other where the RMC sells the home to an outside buyer. It is necessary for two separate transactions to take place in order to comply with IRS ruling 72-339.
Using a home value of $300,000 for example, an employer can save over $13,296 per home sale—which can really add up over the life of your program.
The first transaction takes place without incurring commissions or other closing costs—the end result is that such costs are not taxable to the employee. All commissions and closing costs are incurred during the second transaction, which are classified as an ordinary business expense to the employer, thus avoiding the need for costly gross-up.
Should the sale fall through for any reason (a situation that occurs less than once in every one-hundred transactions), the Company takes over mortgage payments and utilities until the property is sold to another Buyer. These monthly costs are on average 1.5% of the value of the home.
Protecting Tax Savings
Understanding the concept of a BVO program can be complex. It is critical that a company’s BVO program is properly constructed and executed so your tax savings are not jeopardized in an IRS audit. We recommend you work with an RMC like HomeServices Relocation, who is well-versed in the intricacies of this kind of home taxation and will ensure that the 11 Key Elements set forth by Worldwide ERC are followed to the letter, so your tax savings are protected.
HomeServices Relocations’ mobility policy management services are designed to help you spend time managing your business with confidence that your recruitment and retention goals are being supported by a professional and trusted relocation partner.