Level 3

Nanny living in the carriage house

Forum|Forum|5 years ago
May 12, 2021
2 replies
15 views

I have a client that bought a large property and decided to bring on a live-in

nanny for their three kids since daycare would cost $75,000.

The property has multiple buildings including an old carriage house that

they renovated and plan to let the nanny live in as part of compensation.

I’m assuming I should be grossing up compensation on the W-2 for reasonable

rent and utilities as a manual check component or employer loan. I assume

it is a benefit subject to FICA and Medicare, and I’m sure state and local

want pound of flesh too.

I will assume I run rental of the building on Schedule E. I’d assume it

may be a net-net lease only allowing depreciation since it is not truly

income generating. They exceed $150K so derive no benefit but if paying

household employee tax on the adjustments compensation shouldn’t cause

reason to declare as income. That just feels like double taxation and does

not feel right.

If anyone has thoughts or experienced such a goofy animal I’d love to hear

your thoughts. I just hope they don’t decide to hire a priest to be the

nanny...

Lacerte Tax

This topic has been closed for replies.

qbteachmt

Level 15

I think you have some reading to do:

https://www.irs.gov/taxtopics/tc756

https://www.irs.gov/publications/p926

https://www.irs.gov/publications/p15#en_US_2021_publink1000202325

https://www.irs.gov/publications/p15b#en_US_2021_publink1000193701

In general, you are going to need to understand their agreement better, as well. Is this a Rental operation, or Employee Lodging? Can the nanny live elsewhere, or is this part of the job?

Don't yell at us; we're volunteers

G

gb0248Author

Level 3

They are about to begin the process of finding and hiring the nanny.

The conversation started with "We just put $150K into renovating the carriage house, what can we deduct?"

I am trying to guide them into the best program they can do for themselves and their nanny, I definitely have reading to do.

The closest I have found is someone let their employee "Homeless Joe" live in the apartment on top of the auto garage and he was available to take out the tow truck to get wrecks in the middle of the night. They said they never thought it was handled right, never got straight answers because it was shady with too much cash and disengaged with the final straw being the client was always cleaning guns when they came over for quarterlies and the staff did not want to go.

I am looking for a story or example with a happier ending.

BobKamman

Level 15

Those are a lot of assumptions. Did you make them staring at the ceiling, or looking out the window?

G

gb0248Author

Level 3

Publications 926 and 756 do not define compensation.

Other than army and clergy employee housing is not typical in my part of the country.

I am not sure if this is compensation or a fringe benefit and what taxes it may be subjected to.

It is not a discriminatory plan... the kids are on payroll of the schedule C and the household employee is on the schedule H.

It is a separate structure so it is not renting a room, but the property is not sub-divided. There are 4 buildings on the estate.

YES I GOT MY ASSUMPTIONS OFF THE CEILING because I am approaching a problem with a SOLUTION not a PROBLEM and am hoping the community can say if it is correct, incorrect or if there are other things I should be considering. I am trying to give enough facts to give the guidance as to where to look.

This is an industry we learn from mistakes, I'd rather learn from someone else's mistake than create m own.

qbteachmt

Level 15

You can search the links I gave for "Lodging." Yes, the answers are there.

""We just put $150K into renovating the carriage house, what can we deduct?""

You get to include this as Basis against the future sale. There is no Deduction for improving property.

"I am not sure if this is compensation or a fringe benefit"

Or Neither...

"and what taxes it may be subjected to."

Or None.

"It is a separate structure so it is not renting a room"

Renting a Room isn't the same as calling this Rent, or for the convenience of the employer as part of the job. You seem focused on the property, not the relationship.

Don't yell at us; we're volunteers

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