income tax on lease option profits - Posted by Ca Ley

Real Estate Investing Real Estate Law
1

Posted by Brad Hodge on July 24, 2003 at 12:02:08:

If you depreciate the property or have any expenses such as repairs for fix-up costs, these should help offset any income from the rent.

Brad Hodge

2

income tax on lease option profits - Posted by Ca Ley

Posted by Ca Ley on July 21, 2003 at 16:15:11:

I’m a newbie and curious to know how profits on lease options are taxed.

For each one of the below, is this a capital gain tax? Long term or short? or another type of tax (self employment?) at what rate?

  1. All I know is that the the upfront option money is only taxed is it’s forfeited or exercised

  2. What about monthly cash flow payments?

  3. And the back end profit?

Thank you for any advice.

Ca Ley

3

Re: income tax on lease option profits - Posted by JHyre in Ohio

Posted by JHyre in Ohio on July 24, 2003 at 05:56:57:

  1. Correct, taxed when forfeited or exercised.
  2. Rent payments are treated as income. “Credits” are treated as options, as in 1).
  3. Taxed upon exercise in the same manner as the gains on the sale of the property (i.e. - capital gains or ordinary gains, as the case may be).

John Hyre

4

Re: income tax on lease option profits - Posted by Ca Ley

Posted by Ca Ley on July 25, 2003 at 14:41:57:

Thanks John

Is the option money and credits taxed as capital gain?

If you sell it with an one year option or longer, would it be considered long term capital gain?

What is the criteria to consider the back end profit a capital gain or an ordinary gain?

Thanks again,

Ca Ley

5

Re: income tax on lease option profits - Posted by jenv

Posted by jenv on July 25, 2003 at 14:17:22:

Is the gain from a forfeited option capital or ordinary? I assume that since it is taxed when forfeited, that your basis is unaffected (otherwise you would be double-taxed, once on forfeiture and again on sale).