Relocating an Employee Within the United States

Loss on sale

Sometimes it’s difficult to convince an employee to transfer when the sale of their home results in financial loss.

A home is the biggest asset that most employees have. For this reason, companies sometimes develop programs to alleviate loss in order to convince employees to move.

The employee’s investment in the house is usually calculated as follows:

Home Purchase Price + Capital Improvements Made = Investment

If the employee’s investment is more than the sales price, then a loss has occurred. This loss is particularly bad if the principal amount of the mortgage exceeds the net amount received at sale. Company loss-on-sale policies usually provide the employee with a lump sum to make up the difference between the sales price and the amount invested. However, this payment is taxable, so it may also be necessary to "gross up" this amount.

Advancing equity

It’s tricky to time the sale of one house with the purchase of another. If the new house clears escrow before the old house, then the employee needs an advance against the old house in order to put money down on the new house. The company may:

• advance this money out of operating capital
• borrow the money
• OR
• arrange financing for the employee

If possible, this advance should be treated as a down payment on the company's purchase of the old home. If it were a loan with no-interest or below market rate interest, there would be tax consequences.