In December of 2017, the Tax Cuts and Jobs Act amended Internal Revenue Code section 274 to disallow certain deductions for employer provided parking. The IRS recently issued final regulations providing additional guidance to calculate the nondeductible cost of employer provided parking. Included in that guidance is an exception for a parking facility in a rural area in which no commercial parking is available.
Example 11 of the regulations allows an employer to deduct the full cost of parking when an employer provides parking to their employees in a rural area in which no commercial parking is available and an individual other than an employee ordinarily would not consider paying any amount to park in the employer’s parking lot. The employer bears the burden of proving that the parking has no objective value. However, the employer is treated as satisfying this burden if the parking is provided in a rural area in which no commercial parking is available and in which an individual other than an employee ordinarily would not consider paying any amount to park in the parking facility.
In addition, the final regulations also provide an optional rule when an employer pays mixed parking expenses. A mixed parking expense is a single expense paid or incurred that includes both parking facility and non-parking facility expenses for a property that a taxpayer owns or leases. A taxpayer may choose to allocate 5% of any of the following mixed parking expenses to a parking facility: lease or rental agreement expenses, property taxes, interest expense and expenses for utilities and insurance. Alternatively the taxpayer can use a reasonable method to determine the allocation. Other expenses not specifically listed such as snow and ice removal, leaf removal, trash removal, cleaning, landscape costs, parking lot attendant expenses, and security should be allocated using a reasonable methodology.
The final regulations also provide an exception for the cost of providing available parking spaces to the general public. If the primary use of the available parking spaces is to provide parking to the general public, then total parking expense allocable to available parking spaces are deductible. The regulations also provide an exception for reserved employee spaces if the primary use of the available parking spaces is to provide parking to the general public, there are five or fewer reserved employee spaces and the reserved employee spares are 5% or less of the total parking spaces.