Tax Advantaged Relocation Programs
Did You Know... that there are relocation programs that both assist employees with selling their homes and deliver meaningful tax savings?
Did You Know... that these programs can be a powerful recruiting incentive?
Did You Know... that because these programs are tax-protected, your limited recruiting resources can be used more effectively? |
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Until recently, it was not difficult for newly-hired employees to sell their homes in order to relocate for a job. Everything has changed. With the decline in most real estate markets, the fall-out can have a "domino effect." For starters, it can impact a candidate's willingness to consider a job, and it can impede a new employee's ability to make a complete transition after accepting a job.
Institutions concerned with finding ways to facilitate relocation in general can turn to a professional relocation management company for help. And, if they make the decision to provide financial assistance, home sale assistance programs offer a unique approach to solving these critical "departure-related " issues and providing maximum financial assistance. |
A Home Sale Assistance program, which can take several forms, manages the disposal of the property via two separate transactions: one from the homeowner to the relocation company, and the second, from the relocation company to the ultimate buyer of the property. (There are several types of Home Sale Assistance programs; some that involve a "guaranteed buy-out" from the employer, some that do not.) The disposal of the home through two separate sales results in more favorable tax treatment for the homeowner and the employer. In fact, the most important feature of any home sale program is to structure it so that the sale of the employee's residence to the relocation company is viewed by IRS as one sale, and the subsequent resale of the residence to a third party is considered a second, separate sale.
When structured this way, the employee does not receive any compensation from the disposal of the home that would be considered taxable income from the employer. Where they might have received financial assistance in the form of a taxable lump sum payment or direct reimbursement to help cover the costs of the sale, including the significant real estate commission they experience no "income" with the sale to the relocation company.
Additionally, the employer has no liability for payroll taxes or withholding on the amount of money spent to dispose of the residence. Also, assuming the employer "grosses up" any relocation reimbursements to account for the additional income to the employee, these gross-up amounts are reduced or eliminated entirely.
When would the benefits of a formal "Home Sale Assistance" program be most effective?
- When the institution wishes to provide financial assistance for the relocation with maximum tax benefits.
- When the employee is required to start the new position quickly, and the institution does not want the employee encumbered with the sale of the home in the departure location.
- When the institution wants to expedite the purchase of the new home in the destination area and allow the employee quick access to their home equity.
- When the institution wants to offer a significant financial benefit as an employment incentive.
- When the institution wants to maximize limited resources.
- When the institution wants professional oversight of the disposal of the home.
- When the best efforts of the homeowner have failed to produce a sale of the departure home.
The decision to implement a Home Sale Assistance program as part of any organization's relocation policy should be made after careful consideration of the benefits, the costs and the risks. For example, in one type of Home Sale Assistance program, if an outside party signs a contract to buy a property that the institution has purchased from the new employee through the relocation company, but for some reason the sale does not close, the employer must bear the costs of the property until another buyer is found, hopefully at the same price. The tax savings and benefits of Home Sale Assistance programs for both employer and employee are significant, but must be weighed against these serious considerations.
THE BOTTOM LINE:
Relocation benefits, including Home Sale Assistance programs, deliver powerful benefits and recruiting incentives. With so much time, effort and investment riding on the successful acquisition of the very best talent, why leave their relocations to chance? Relocate them accordingly. Call The Talbot Group.
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