Mortgage assistance is business deduction for employers


Issue:

Your company has hired an executive who will need to relocate from her home in Dallas, Texas, to your headquarters in St. Louis, Missouri. Your manager would like to know if the company can provide the executive with some type of mortgage assistance in buying a new home. If so, what are the tax effects of doing so?

Answer:    

In order to assist an executive in relocating, many employers arrange to pay part of the executive's mortgage payment on a home in the new location. These mortgage assistance payments take many forms, but the primary method involves the employer "buying down" the executive's mortgage loan.

The term "buying down" means that the employer will assist in the executive's mortgage payment for a specified period (for example, one year after relocation). By this method, the employer "buys down" the executive's direct monthly cost for his mortgage and helps overcome a major disadvantage of relocation.

Tax effects. If the employer makes its portion of the mortgage payment to an unrelated third-party lender in order to buy down the executive's mortgage loan, the employer's payment generally must be included in the executive's income as taxable wages and a corresponding business deduction is allowed to the employer. The buy-down or other form of mortgage assistance is treated as compensation to the executive and not as a type of tax-free fringe benefit.

However, if the employer loans money directly to an executive in order to provide mortgage assistance or to help in the relocation process and the loan is made either on an interest-free basis or at a below-market interest rate, the tax effect upon the executive is determined under imputed interest rules.

Source: CCH Employee Benefits Management

[ Return to top of document ]