Most businesses today are struggling to attract and retain quality employees and the real estate industry is no exception. If you are looking to hire a property manager, consider providing lodging as part of the compensation package. Not only is free (or discounted) lodging a valuable perk, but if certain requirements are met, its value can be excluded from the employee's wages for federal (and, usually, state) tax purposes. The value of the lodging is still deductible as a business expense, but it is income tax-free to the employee, and both employee and employer avoid payroll taxes on that amount.

If you are interested in providing free lodging to property managers, plan carefully to ensure that the lodging qualifies as a tax-free fringe benefit. Generally, that means it is:

  • Furnished on the employer's business premises;
  • Provided for the employer's convenience; and
  • A condition of the property manager's employment.


To meet this requirement, the lodging must be at the employee's place of work. Typically, it is easy for property managers to meet this requirement. For example, if an apartment building manager is provided an apartment in the building, clearly the lodging is on the business premises. In some cases, it may be possible to meet this requirement if the lodging is very close to the building being managed. For example, in one case, a hotel manager was provided a house across the street from the hotel (on hotel-owned property), adjacent to the hotel parking lot. Because the house was within the perimeter of the hotel property — and the manager, who was on call 24 hours a day, performed a significant portion of his duties in the house — the U.S. Tax Court found that the house was on the business premises.


This means that the employer furnishes the lodging for a substantial business reason other than providing the employee with additional compensation. For property managers, this requirement is usually satisfied if the business reason for providing lodging is to ensure that managers are available to perform their duties at all times.


This requirement is closely related to the “employer's convenience” requirement. Lodging qualifies if property managers must live on the business premises to properly perform their duties — for example, because they are on call 24 hours a day. It does not qualify if you give the employee a choice between free lodging and additional cash compensation. In that case, if the employee chooses free lodging, it is not considered a condition of employment and its value must be included in the employee's taxable wages.

Keep in mind that whether lodging is provided for the employer's convenience and as a condition of employment depends on all the facts and circumstances. The terms of an employment contract or applicable state law are not determinative, at least for federal tax purposes. If you are considering offering free lodging to property managers as a fringe benefit, work closely with your ORBA advisors to be sure that you avoid unpleasant tax surprises.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.