Tax tip for apartment managers

by Sean on April 12, 2006

This tip is about how to exclude part of your apartment manager compensation from taxable income. But first, let me give you the standard legal disclaimer: I am not a tax professional, and I don’t give tax advice, so seek the help of a duly licensed tax professional before even attempting to decipher the intricacies of the convoluted U.S. tax system. And don’t bother filling out anything other than a 1040EZ without at least two H&R Block consultants by your side.

Whew, got that out of my system. Okay, so here goes:

My wife and I are currently resident apartment managers, compensated entirely with “free” rent. We’ve been doing this since July of 2004, and it has been one of the best things to happen to us – the money freed up by not having to pay rent goes a long way. Taxes for 2004 weren’t a problem, but when the tax documents for 2005 started to come in during January, we noticed that we’d gotten a W-2 for apartment job. The mind-blowing part was that our taxable income on those forms was in the $8,000 range. Keep in mind that this was for the same job that had triggered no taxable income in 2004. Go figure.

Fortunately, I married well. That is, my father-in-law is a CPA, and apparently does taxes for fun :). I did our taxes this year, calculating that we actually owed money. Then, my father-in-law took a look at everything, worked his magic, and found a substantial refund.

I had calculated our taxes with the $8,000+ extra taxable income from our management job. Fortunately, there are provisions in the Internal Revenue Code that prevent employers from including in employees’ gross income the value of lodging provided, as long as it is a condition of employment. Here’s the actual Internal Revenue Code excerpt that my father-in-law showed me:

(a) Meals and lodging furnished to employee, his spouse, and his dependents, pursuant to employment.

There shall be excluded from gross income of an employee the value of any meals or lodging furnished to him, his spouse, or any of his dependents by or on behalf of his employer for the convenience of the employer, but only if —

(1) in the case of meals, the meals are furnished on the business premises of the employer, or
(2) in the case of lodging, the employee is required to accept such lodging on the business premises of his employer as a condition of his employment.

In addition, Regulations § 1.119 (b) Lodging state:

The value of lodging furnished to an employee by the employer shall be excluded from the employee’s income if three tests are met:

(1) The lodging is furnished on the business premises of the employer
(2) The lodging is furnished for the convenience of the employer, and
(3) The employee is required to accept such lodging as a condition of his employment.

In our case, we are on-site apartment managers, so our lodging is a requirement of our employment, furnished “for the convenience of [our] employer”, and it is definitely on the business premises of our employer.

If you’re in a similar situation, you may find that part of your gross income can be excluded from your taxable income. Thank goodness for my father-in-law — his expertise has meant about a $700 positive difference in the outcome of our taxes.