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No More Parking Expense Deduction?

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The Tax Cuts and Jobs Act of 2017 (TCJA) may have reduced the corporate tax rate, but it also eliminated or reduced expenses that businesses were used to deducting. The qualified transportation fringe (QTF) benefit companies provided to their employees is one of the expenses that generally has been eliminated (IRC Section 274(a)(4)).

Qualified transportation fringe means any of the following provided by an employer to an employee (IRC Section 132(f)):

  1. Transportation in a commuter highway vehicle if such transportation is in connection with travel between the employee’s residence and place of employment;
  2. Any transit pass;
  3. Qualifying parking; and
  4. Any qualified bicycle commuting reimbursement.

Parking provided to employees usually is accomplished by either paying a third party for parking spots or by making available employer-owned or leased facilities. Paying a third party is very straightforward. The company pays a certain amount for each of its employees’ parking spots. Under TCJA, the total amount paid by the company is not deductible unless the monthly amount per spot exceeds an indexed amount ($260 in 2018 and $265 in 2019) (Section 132(f)(2)(B)). Any excess payment beyond the indexed amount is deductible by the company as compensation to the employee.

The other alternative - providing a company-owned or leased parking facility or lot for use by employees - is more complex. Determining what expenses are considered parking expenses and how many of the parking spots are used by employees is a much more difficult task. The IRS issued Notice 2018-99 on December 10, 2018, which provides some guidance in determining what expenses are considered parking expenses and how to compute the nondeductible amount of those parking expenses. The Notice says any reasonable computation of the nondeductible amount of parking expenses is allowed until further guidance is issued, but goes on to provide a four-step safe harbor computation. The simplified version of the four steps is as follows:

  1. Calculate the amount of expense related to reserved employee spots. These expenses are nondeductible.
  2. Determine the primary use of the remaining parking spots. If more than 50% of these spots will be used by non-employees, all remaining expenses will be deductible.
  3. If more than 50% of the remaining parking spots will be used by employees, calculate the expenses related to any reserved non-employee spots. These amounts will be deductible.
  4. The remaining parking expense will be allocated based on the percentage use by employees and non-employees of the remaining parking spots. The amount allocated to employees will not be deductible, and the amount allocated to nonemployees will be deductible.

For the safe-harbor computation, partners, sole proprietors, and 2-percent shareholders of S Corporations are considered non-employees.

Reserved Parking Adjustment Deadline: March 31, 2019

Taxpayers that have reserved employee parking spots have until March 31, 2019, to change their parking arrangements if they want to decrease or eliminate their reserved employee spots and treat these spots as not reserved employee spots. The Notice allows this change to be retroactive to January 1, 2018.

The actual determination of parking expenses and how to compute the non-deductible portion can be complicated. There may be alternatives to help reduce the non-deductible portion of your company’s expense. A Marcum tax professional would be happy to discuss your specific situation with you.

 
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