Lease-to-buy sale of primary residence

[BP.]

Client is considering a lease-to-buy offer on her primary residence. No contract yet, but from what she says, an excess portion of the monthly lease payment is put into escrow to be applied to the down payment when/if settlement occurs. If no settlement, these excess funds are returned to the lessee. Client (lessor) retains title to home during lease period. Her question to me is, can she still deduct the mortgage interest. I couldn't see why not, since mortgage and deed will still be in her name, and she'll be responsible for payment. Subject to the contract, is this simply a Schedule E situation until settlement, or something different?

[BHoffman]

Client is considering a lease-to-buy offer on her primary residence. No contract yet, but from what she says, an excess portion of the monthly lease payment is put into escrow to be applied to the down payment when/if settlement occurs. If no settlement, these excess funds are returned to the lessee. Client (lessor) retains title to home during lease period. Her question to me is, can she still deduct the mortgage interest. I couldn't see why not, since mortgage and deed will still be in her name, and she'll be responsible for payment. Subject to the contract, is this simply a Schedule E situation until settlement, or something different?

Hi BP - does your client ever have any constructive receipt of the funds before they are put into escrow? I see why you might wonder if this is an installment sale or something different like that, but it doesn't look that way to me. I would say offhand that your client will treat this as a rental property on Sch E until the property actually changes owners.

[BP.]

Hey, BHoffman- OK thanks. No, doesn't sound like she can touch the funds in escrow.