Academic journal article Journal of Accountancy

Tax Consequences of Home Purchase Programs: Home Sales for Job Moves

Academic journal article Journal of Accountancy

Tax Consequences of Home Purchase Programs: Home Sales for Job Moves

Article excerpt

When employees are asked to relocate to a new job site, employers often offer various benefits--including home purchase programs--to ease the transition. Using three examples, revenue ruling 2005-74 explains the tax con sequences to employees and employers; CPAs should become familiar with them.

FACTS

In the ruling an employer either arranges to purchase an employee's home at a certain price or contracts with a third-party relocation company to act as its agent and administer a buyout.

In the first scenario the employee effectively sells the residence to the employer via the relocation company; the buyout price is generally the average of two or three appraisals. The property is transferred to the agent. The employer later sells the property to a third-party buyer at a loss.

The second scenario is the same, except the buyout price may be determined by an "amend ed value option" under which the employee can hire a broker to locate a prospective buyer who will offer more than the appraised value. If such an offer is made, the employer through its agent--purchases the home at the higher bid price. The employer may or may not sell the property to that prospective buyer. If it does, the employee is not entitled to any part of the sales price the employer receives that exceeds the amount the employee received for the home.

The third scenario is the same as the second, but the employee's sale of the home to the employer at the higher amended price hinges on the employer's entering into a contract (acting through the agent) with the actual prospective buyer the employee located. The employee also retains the right to negotiate the sale of the residence to that buyer. Further, the employee receives proceeds representing the higher amended value, provided the sale of the home to the third-party buyer closes. …

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