The Amended Value Option and Tax Favorability
To facilitate a relocation, many employers offer home selling assistance to homeowner transferees. Home sale assistance can come in various forms; however, the IRS specifically calls out the Amended Value (AV) program as the favored method in terms of compliance.
An AV program allows the transferee to market the property and attempt to find a buyer before the employer acquires the property and takes it into inventory. If the transferee finds a buyer, he sells the home to a third party Relocation Management Company (RMC) for the agreed-upon price, and the RMC, in a second and separate transaction, sells the property to the buyer for the same price.
While this might seem rather convoluted, the IRS mandates that for a homesale transaction to be non-taxable, it must include these two separate sale transactions and adhere to Worldwide ERC’s “11 Key Elements and Procedures of an Amended Value Transaction”. If the employer and transferee follow these guidelines strictly, then no Federal tax is due on the homesale assistance benefit.
Worldwide ERC’s “11 Key Elements and Procedures of an Amended Value Transaction” are as follows:
- Any employee (EMPLOYEE) wishing to take advantage of an Amended Value Option who lists his/her home with a real estate broker must include a suitable exclusion clause in the listing agreement whereby the listing agreement is terminated upon the sale of the home to either the employer or the relocation company.
- Under no circumstances should EMPLOYEE accept a down payment from any potential buyer.
- Under no circumstances should EMPLOYEE sign an offer presented by any potential buyer.
- EMPLOYEE enters into a binding contract (“Contract of Sale”) with his/her employer or the relocation service company (“PURCHASER”).
- After the execution of the Contract of Sale with PURCHASER and after EMPLOYEE has vacated the home, all of the burdens and benefits of ownership pass to the PURCHASER.
- The Contract of Sale between EMPLOYEE and PURCHASER at the higher price is unconditional and not contingent on any event, including the potential buyer obtaining a mortgage commitment.
- Neither EMPLOYEE nor the employer in the case of a relocation company transaction exercises any discretion over the subsequent sale of the home by the PURCHASER.
- PURCHASER enters into a separate listing agreement with a real estate broker to assist with the resale of the property.
- PURCHASER enters into a separate agreement to sell the home to a buyer.
- PURCHASER arranges for the transfer of title to the buyer.
- The purchase price eventually paid by the buyer has no effect on the purchase price paid to EMPLOYEE.
Want to know more about Employer and Transferee Taxation of Relocation Expenses?
Relocation Tax and the Mobile Workforce will cover:
- Relocation Tax Best Practices
- Tax Guidelines for Homesale Assistance benefit
- Relocation Policy components and Taxability