Lowered Rent for Services Rendered

[zeros]

Taxpayer is doing work around the place where he rents. The landlord agreed to lower his rent by the amount of the value of his work. Would this be taxable?

[Fuzzy Faced Leader]

Yes, this is a barter arrangement. The taxpayer would have income equal to the reduced rent.

[geekgirldany]

Good example:

http://www.artisttrust.org/services/prof_dev/barter

Here is an example of bartering offered by way of an example on the IRS website: an artist gives a work of art he created to the owner of an apartment building in exchange for 6 months rent-free use of an apartment. The artist must report as income on Schedule C or Schedule C–EZ (Form 1040) the fair rental value of the apartment and the owner of the apartment building must report as rental income on Schedule E (Form 1040) the fair market value of the artwork.

[Bees Knees]

I disagree

Caretakers do not pay tax on the value of the rental unit they receive for free in exchange for work because of the exclusion rule under Section 119.

If the tenant is doing work as a caretaker in exchange for free or reduced rent, it is a tax free fringe benefit.

[Fuzzy Faced Leader]

I looked at Section 119, which is "Meals or Lodging Furnished for the convenience of the Employer", and could not find the exception you pointed out. The Section 119 information is from 2008 Thompson RIA. Please give me the exact Section reference.

[Bees Knees]

I looked at Section 119, which is "Meals or Lodging Furnished for the convenience of the Employer", and could not find the exception you pointed out. The Section 119 information is from 2008 Thompson RIA. Please give me the exact Section reference.

What do you think meals and lodging means?

Free lodging (caretaker gets free rent)...furnished for the convenience of the employer (landlord wants the caretaker to live on site), in exchange for the caretaker's services...

Tax free.

[ChEAr$]

Caretaker

Caretakers do not pay tax on the value of the rental unit they receive for free in exchange for work because of the exclusion rule under Section 119.

If the tenant is doing work as a caretaker in exchange for free or reduced rent, it is a tax free fringe benefit.

to me means a continuous relationship instead of just the isolated work for a few months
as related by the OP. So I'll go with others who say taxable income in THIS case.

Quarters furnished by an employer in addition to regular salary would qualify however.

[Bees Knees]

You can't hire an employee for part time temporary work?

Where does it say in Section 119 that the exclusion only applies to full time employees who expect to be employed for at least so many years?

[taxxcpa]

The letter of the law vs spirit of the law

You can't hire an employee for part time temporary work?

Where does it say in Section 119 that the exclusion only applies to full time employees who expect to be employed for at least so many years?

Contrary to what we so often hear, the letter of the law usually prevails. The law does not make any sort of distinction between full-time and part-time employees so there is no basis for reading that distinction into the law.

Maybe the exclusion was intended to cover full-time employees and maybe it wasn't, but even a full-time employee might moonlight with a second job--so I would agree that the job does NOT have to be full-time. There is nothing in the law saying it has to be full-time.

Another way of looking at it:-- the guy who does the work in exchange for reduced rent pays no tax on it, but the landlord will pay more tax since he cannot deduct the value of the services, so it is revenue neutral to the IRS.

[Bees Knees]

Has anyone ever seen a W-2 for a caretaker of an apartment building that included the value of reduced or free rent in box 1 as taxable wages?

None of you have. And in most cases, the caretaker never gets a W-2, period. His (or her) entire salary is made up of free or reduced rent. Section 119 does not require the employee to be paid any additional taxable cash wages on top of the tax free fringe benefit. The definition of an employee is not dependent on such person receiving a W-2. No where in the code does it say at least some of an employee’s compensation has to be in the form of taxable cash wages.

In fact, in Minnesota, renters can receive a property tax refund for the value of the property taxes that are included in their rent. The calculation is based on total household income and total property taxes paid. The M1PR starts with federal adjusted gross income, and then requires you to add in other income that is not included in federal AGI. Line 5 has you add in nontaxable income that is not included in federal AGI. One of the add backs is:

• a reduction in your rent for caretaking responsibilities. Enter the difference between your actual rent and the amount your rent would have been if you had not been the caretaker

Why does a caretaking get reduced rent tax-free?

Its because of IRC Section 119.

[Bees Knees]

BTW geekgirldany,

The example you cited does not apply to this case. The artist paid his rent in the form of giving property in exchange for 6 months of free rent. The artist is in the business of creating art. The art he created had a FMV. The art he created was used as barter to pay for his rent.

Nothing in the example says the artist performed services for the landlord in exchange for free rent. He got the free rent in exchange for property he created. Creating art for the landlord’s personal use in exchange for free rent is not the same as vacuuming the stairs or painting empty apartments in exchange for free rent.

[taxxcpa]

Mixing apples and oranges

BTW geekgirldany,

The example you cited does not apply to this case. The artist paid his rent in the form of giving property in exchange for 6 months of free rent. The artist is in the business of creating art. The art he created had a FMV. The art he created was used as barter to pay for his rent.

Nothing in the example says the artist performed services for the landlord in exchange for free rent. He got the free rent in exchange for property he created. Creating art for the landlord’s personal use in exchange for free rent is not the same as vacuuming the stairs or painting empty apartments in exchange for free rent.

It's definitely a horse of another color.

[Fuzzy Faced Leader]

The original post says tenant is doing work around the place he works. This does not indicate tenant is an employee. Hw could be an I.C. If so, the reduction in rent is taxable compensation.