Question

A new home construction company gives an employee a 30% discount on a new home. The tax implications of the 30% discount to the employee would be:

A) This is not a taxable benefit

B) The full discount amount is a taxable benefit

C) The discount in excess of 15,000 is a taxable benefit

D) 50% of the discount amount is a taxable benefit

Answer 1

Sec. 132(a)(2) allows employers to provide a qualified employee discount that is excludable from an employee's taxable income. A qualified employee discount is defined under Sec. 132(c) as a discount with respect to qualified property or services that:

• In the case of property, does not exceed the gross profit percentage of the price at which the property is offered to customers; or
• In the case of services, does not exceed 20% of the price at which the services are offered to customers.

It is assumed that gross profit margin is 30% or more, therefore discount amount will not be taxable.