Tax question on the L/O agreement - Posted by Jeff

Posted by Ernest Tew on February 19, 2002 at 17:19:06:

Wayne, after 41 years in the business I have accumulated a lot of information. I’m not sure how to go about “sending it all” to you. Perhaps the most efficient way for me to send what you need for investing in mobile homes would be to send you my manual and computer disk with about 50 forms. You can order it through Creative Real Estate.

Tax question on the L/O agreement - Posted by Jeff

Posted by Jeff on January 11, 2002 at 12:21:07:

I’ve been looking at the L/O agreement and to me this seems like a good way to rent/sell mh’s. Let me see if I have this right. I purchace a mh for $3000 in 2002, find a buyer to L/O the mh for $750/mo for 36mos with an option to buy the mh for $9200. We agree that $150/mo of the rent will go towards the purchase price. I pay the mh park fees, ins, and taxes of $400/mo over the 36mos from the $700. The remaining $200/mo goes to me for rent. At the end of the 36mos the buyer has the option to buy the mh for $3800. If the buyer takes the option and pays me in full the $3800 in 2005 will my tax obligation be $6200; $5400(150*36)+$3800(buy out)-$3000(my cost)? And I’m I right to think the $200 rent monthly is taxed yearly?

Re: Important Lease & Option considerations - Posted by Ernest Tew

Posted by Ernest Tew on January 15, 2002 at 08:08:30:

If you buy a mobile home with the intent to resell, the IRS will consider it dealer property. It means that you won’t be entitled to installment reporting and all the gain will be taxed in the year the transaction was made, regardless of the terms.

Regardless of what we call the transaction, if it ?too closely resembles a sale,? it could be treated as a sale by the IRS and taxed accordingly. Factors that the IRS consider include: (1) whether the lessee acquires title after making a certain number of payments; (2) whether the lessee is given credit for a portion of each lease payment; (3) whether the rental payments materially exceed the fair market value of the property; and (4) if the option price at the end of the lease is nominal in relation to the value.

To avoid having to pay income taxes on profits not yet received, these considerations must be taken into account. We solve the problem by entering into two separate agreements: A Net Lease and an Option To Buy. However, the terms must avoid or find a way around all the situations mentioned above.

Our Net Lease and Option documents have been carefully drafted to avoid these problems. We have used the forms in several hundred mobile home transactions and others around the country have used them. To date, we have encountered no problems with the forms.

These and many other useful forms are on a computer disk that is included with my book, “How To Get Rich Helping Others.”

However, if you would just like to receive a a free copy of these forms, please send me an e-mail message requesting them.

Re: Important Lease & Option considerations - Posted by wayne smith

Posted by wayne smith on February 19, 2002 at 15:15:54:

Please send me all the infor you have in investing in mobil homes. Sincerely Thank You,Wayne

Re: Important Lease & Option considerations - Posted by Randy, OH

Posted by Randy, OH on January 31, 2002 at 17:30:25:

Could you send me a copy too?