Posted by Tim on September 10, 2003 at 19:56:57:
Thanks for the confirmation, this is what I thought. I went to your site, but I couldn’t bring up your “l/o vs contact for deed” article. I ended up doing a search on the web & found your article from a link on another web site.
Contract for deed & taxes - Posted by Tim
Posted by Tim on September 10, 2003 at 16:40:10:
I have formed an LLC with another investor, our intention is to buy & rent properties. I have a few rentals now, & have always done a straight lease agreement. The other investor prefers to use the “rent to own” method, giving the tenant partial rent credit every month while treating the property as a rental for tax purposes. I am concerned about the tax & legal implications of this method.
Before we do any deals we will be talking to a tax attorney/CPA, but any input would be appreciated.
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:
You get the point?