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.