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discounts on Rent

edited November 2010 in General Payroll Topics
I am having trouble deciphering the IRS Pub 15-B and need some clarification. :)

We are a Property Managment Company, we manage apartment communities. Some employees live at the property they work at and receive 20% discount on rent. Ok, This I know is OK, it is the employees who receive 21% or more ... I think I am supposed to add the amount over the 20% to their taxable wages?

Is this included in the Employee Discount section? It states that "if the discount exceeds 20%, the excess is taxable income to the employee"

Any insight would be much appreciated!


  • But the rules for qualified employee discounts do not apply to real property - looking further - that is the purchase of real property - and I have not found anything discussing whether the real property exception applies to long term real property rentals. Assuming that long term leasing of real property is a "service" provided to customers and the employees fall within the "line of business rules" - it is possible.
    However, why are the employees getting more than 20% ? Is this an "employer convenience" issue? If so, then the exclusion for employer provided lodging may be applicable. Incidentally, that exclusion is limited
    Regulation 1.119-1 Meals and lodging furnished for the convenience of the employer
    1.119-1(b) Lodging. The value of lodging furnished to an employee by the employer shall be excluded from the employee's gross income if three tests are met:
    1.119-1(b)(1)(1) The lodging is furnished on the business premises of the employer,
    1.119-1(b)(2)(2) The lodging is furnished for the convenience of the employer, and
    1.119-1(b)(3)(3) The employee is required to accept such lodging as a condition of his employment.
    The requirement of subparagraph (3) of this paragraph that the employee is required to accept such lodging as a condition of his employment means that he be required to accept the lodging in order to enable him properly to perform the duties of his employment. Lodging will be regarded as furnished to enable the employee properly to perform the duties of his employment when, for example, the lodging is furnished because the employee is required to be available for duty at all times or because the employee could not perform the services required of him unless he is furnished such lodging. If the tests described in subparagraphs (1), (2), and (3) of this paragraph are met, the exclusion shall apply irrespective of whether a charge is made, or whether, under an employment contract or statute fixing the terms of employment, such lodging is furnished as compensation. If the employer furnishes the employee lodging for which the employee is charged an unvarying amount irrespective of whether he accepts the lodging, the amount of the charge made by the employer for such lodging is not, as such, part of the compensation includible in the gross income of the employee; whether the value of the lodging is excludable from gross income under section 119 is determined by applying the other rules of this paragraph. If the tests described in subparagraph (1), (2), and (3) of this paragraph are not met, the employee shall include in gross income the value of the lodging regardless of whether it exceeds or is less than the amount charged. In the absence of evidence to the contrary, the value of the lodging may be deemed to be equal to the amount charged.

    I'm having trouble wrapping my head around the last sentence.