Relocation Costs

FAR 31.205-35 provides for allowability of certain relocation costs. Though the company paid for Donald’s movers, several other costs made allowable in FAR 31.205-35 are included in the $110,000 payment. These costs include:

   1. FAR 31.205-35(a)(4). Costs incident to the disposition of the actual residence owned by the employee, not to exceed 14 percent of the sales price. The sales price for the California house was $1,650,000 where closing costs were $82,000, representing brokers fees of $50,000 and other escrow expenses.

   2. FAR 31.205-35(a)(6). Costs incident to acquiring a home in the new location is limited to 5 percent of purchase home. The purchase price were $1,450,000 where costs related to purchasing the Maryland home was $65,000 which included $48,000 for sales commission and other related escrow expenses.

   3. FAR 31.205-35(a)(7)(ii). Mortgage interest rate differential equal to the difference in interest rates between the old and new home times the mortgage for the old property times 3 years. Interest rate on the old mortgage was 4.25 on a mortgage amount of $600,000 while interest rate on the new home mortgage was 8.25%. So the differential of 4.0% times the old mortgage time three years equals $72,000.

   4. FAR 31.205-35(b)(4). Miscellaneous amount, $5,000.

Additional allowable costs were also incurred where the $110,000 was intended to cover them such as house hunting trips to Washington DC – (FAR 31.20535(a)(2)), tax gross ups for the additional compensation – (FAR 31.205-35(a)(10)) and $45,000 in costs to fix plumbing and dry rot problems in the new home before moving in - (FAR 31.205-35(a)(5)).

In sum allowable relocation costs discussed above exceeds $300,000.

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