Taxes and Lease Options - Posted by GregNorman

Posted by B.L.Renfrow on March 31, 2000 at 15:32:57:

Tom Bazley’s response was, essentially, that it could be reported on Schedule D one of two ways:

  1. Report it as though you did purchase and resell, with the basis being your purchase price and the sale price being $5000 higher.


  1. Also report on Sch D, with $0 as your basis and $5000 as your sale price.

Either way, it’s short term gain and taxed at your ordinary income rate. His position was that IRS employees would be familiar with flips, though maybe not assignments, so he felt the first way would offer less risk of raising questions.

Having read JPiper’s response, I can say for sure…I don’t know!

Brian (NY)

Taxes and Lease Options - Posted by GregNorman

Posted by GregNorman on March 31, 2000 at 08:36:22:

When settling on a sandwich lease option this year (where I leased for a little over one year from the owner under one contract and my tenant/buyers leased it from me a little over a year on another contract), the settlement company wanted to just have on contract between the owners and the t/bs directly and just have the owners disperse the funds to me at closing. At closing I received a $5k check from the owners directly. Now looking to finish up my taxes (this MUST be the last year I’m going to do it myself w/ turbo tax) and I’m not sure exactly where that $5k goes on these tax forms (I’m using turbo tax)!

First of all, being assigned, did I ‘own the property for more than a year’ (b/c I’ve controlled it for over a year, but according to closing I never really owned it)?

Turbo tax is calculating this thing on Form 4797. I thought it would be on a Sked D. Is Form 4797 correct or should I do a little ‘manual override’ to ensure this thing is placed in the right spot?

Any help would be appreciated.


Re: Taxes and Lease Options - Posted by JPiper

Posted by JPiper on March 31, 2000 at 15:04:35:


First, you didn?t own the property for a year. You leased the property. Therefore, even in the event that the transaction took place by your exercising your option, and then simultaneously reselling to the tenant/buyer, your holding period is essentially 1 day?..not 1 year.

Second, in my non-CPA view, this transaction does not appropriately belong on Schedule D?.because in fact you never owned the property at all.

The way I view this income is that you received a ?fee??..and chances are high that this is how the seller?s will report it. It will be an adjustment to their gross sales proceeds.

What form a fee goes on you should ask an accountant?.but in my opinion, it wouldn?t be schedule D. Personally, my guess would be that if this was done in your individual name that the ?fee? should be on a Schedule C. We?ll see how others respond.


Re: Taxes and Lease Options - Posted by B.L.Renfrow

Posted by B.L.Renfrow on March 31, 2000 at 10:28:38:


I posted a similar question a few days ago. Here is the link to Tom Bazley’s reply, which you may find helpful:

Brian (NY)

Re: Taxes and Lease Options - Posted by GregNorman

Posted by GregNorman on March 31, 2000 at 16:16:34:


In regards to not owning the property for more than a year: I have a controlling lease (both ways) for over a year period that has been through my LLC which is owned only by my wife and I, therefore monthly income is being tracked directly on my Sked E income (both incoming and outgoing rent payments). Turbo tax asks me if I’ve sold it. I say ‘Yes’. It pops up this form 4797 (i think it was). There it asks me when I bought it and sold it, basis, net sales price, etc. Now I just want to make sure this is the correct spot for it to go.

My assignments have been going on Sked C like you mentioned above, but I figured this may be reported differently b/c I’ve ‘controlled’ the property for more than a year (although it was handled differently at the title company) and have been tracking it on Sked E.

Now that I’m thinking about it… does it make any difference in the taxes I pay? If not, I’ll happily just answer the questions as turbo tax asks them and keep my fingers crossed!


PS - If you are reading this and are ‘new’ to the real estate field (and even though I’ve done about a dozen of these, I still consider myself relatively new), take my advice and find a good tax guy before you get in ‘too deep’ and find yourself at tax time thinking ‘God I hope they don’t audit me’ (like me). I’ve got the best intentions, but this stuff is hard to figure out. (Note to self: find good tax guy.)

A little more detail, please. - Posted by GregNorman

Posted by GregNorman on March 31, 2000 at 14:24:52:


Thanks for the reference to the post (I can’t keep up with the board like I’d like to). Problem is I can’t tell what exactly you asked on the previous post.

I’m still wondering if the Form, vice Sked D, is correct. And is it considered an ‘over a year long holding time’ or ‘instantaneous’?


Re: Taxes and Lease Options - Posted by JPiper

Posted by JPiper on March 31, 2000 at 17:38:04:

My answer is still the same. When Turbo Tax (not that I’m familiar with the program) asks you if you “sold” the property…the answer is NOT yes. The fact is that you didn’t buy it, and you didn’t sell it. What you did was you leased the property…that doesn’t equal sale. You had an option…that doesn’t equal sale either.

Your next move was to remove yourself from the middle of the deal…so that the seller could sell to the tenant/buyer. You took a “fee” as your compensation…just like you would have had you assigned the deal. You never owned the property, and never “sold” it. As far as Turbo tax goes…garbage in, garbage out. The answer to the question is “no”.