Re: Contract for deed & taxes - Posted by William Bronchick
Posted by William Bronchick on September 10, 2003 at 16:55:32:
According to Tax Court Memorandum 1999-11, a short term lease with option does not create a “sale” for tax purposes. So, it would continue to be a rental, whether or not you give a tenant a rent credit.
However, it is possible for the IRS to re-characterize a lease/option as sale, if it looks like a sale. The kind of lease/options we talk about on this board (and in my course) have a slim-to-none chance of being re-characterized, simply because they don’t look like a sale.
A sale looks like this:
- 10 year lease with option
- Monthly payment that looks like a mortgage payment
- Buyer pays the taxes and insurance
- Declining option price, similar to a mortgage balance
You get the point?