Student Loan Payments as a Business Expense?

4 Replies

With the recent change in tax laws and businesses including sole props now being able to set up a 127 education assistance plan and deduct student loan payments as a business expense. 

I was wondering if this is available to rental properties owners as well?  Based on the research I have done my understanding is they would not be able to take advantage of these plans as it is passive income but I was hoping someone would be able to confirm that if this is their understanding as well or to help me in where I may be misunderstanding? 


https://assets.kpmg/content/da...

I have attached a link to an article for anyone not familiar with education assistance plans.

Originally posted by @Michael Wagner :

With the recent change in tax laws and businesses including sole props now being able to set up a 127 education assistance plan and deduct student loan payments as a business expense. 

I was wondering if this is available to rental properties owners as well?  Based on the research I have done my understanding is they would not be able to take advantage of these plans as it is passive income but I was hoping someone would be able to confirm that if this is their understanding as well or to help me in where I may be misunderstanding? 


https://assets.kpmg/content/da...

I have attached a link to an article for anyone not familiar with education assistance plans.

This is available if you are an employee of the business. If you have an S-corp or C-corp (Not a partnership or sole proprietor, or just rentals), you can deduct 5,250 from business to pay your student loan if you provide service to your corporation and have a W-2 from your corp. 

If your business activity is only rental, this will not apply to you.  

 

@Ashish Acharya isnt there a 127 discrimination rule for owners and attributed owners?, If you are a sole owner of an S corp and have no employees, that would violate the 5% rule I believe (correct me if Im wrong)!

Originally posted by @Greg O'Brien :

@Ashish Acharya isnt there a 127 discrimination rule for owners and attributed owners?, If you are a sole owner of an S corp and have no employees, that would violate the 5% rule I believe (correct me if Im wrong)!

No, you are not. Of course, all the requirements, including 5%, of the code have to be met.  Listing out here just so it's clear to all other readers. 

In order to meet the qualification rules for tax-free Section 127 educational assistance programs, all of the following must be met [IRC Sec. 127(b)]:

  • a. The educational assistance program must be pursuant to a separate written plan of an employer for the exclusive benefit of employees [IRC Sec. 127(b)(1)].
  • b. The program must benefit employees who qualify under a classification that does not discriminate in favor of highly compensated employees or their spouses and dependents [IRC Sec. 127(b)(2)].
  • c. The program cannot provide more than 5% of benefits to a class of individuals who are shareholders or their spouses and dependents [IRC Sec. 127(b)(3)].
  • d. The program cannot offer a choice between educational assistance and other forms of taxable compensation [IRC Sec. 127(b)(4)].
  • e. Employees must be given reasonable notification of the availability and terms of the program [IRC Sec. 127(b)(6)].

@Ashish Acharya

Thank you very much for all of that information it is greatly appreciated. For some reason I was under the impression that there was an exclusion for unincorporated entities ( sole prop, or partnership) and it was the non-self employment income of the rental portfolio that I was going to run into issues with.  Thank you for that clarification