gotta tell someone...

[luke]

Client has had rental income/expense since 2004 - 2010 tax info did not have any rental?
We called to get amounts - he said oh those people "paid off their rent to own last year so we dont have anything for rental"! He has NEVER told us that previous rent was installment sale - he always called it rental income (on the info he provided to us)! Now what? He has shown Rental Income every year when this was ACTUALLY an installment sale of their residence........... Can I EXPLODE now?

[kpangelinan]

Yikes.....

Client has had rental income/expense since 2004 - 2010 tax info did not have any rental?
We called to get amounts - he said oh those people "paid off their rent to own last year so we dont have anything for rental"! He has NEVER told us that previous rent was installment sale - he always called it rental income (on the info he provided to us)! Now what? He has shown Rental Income every year when this was ACTUALLY an installment sale of their residence........... Can I EXPLODE now?

Gotta love our clients......holy moly...

[erchess]

I think

Rent to Own is different from either an Installment Sale or a Rental and doing a correct tax return would require a copy of the possibly non existent sales contract. Would have been interesting but what should OP do now?

[Terry]

I'm interested in others thoughts...

on this, as I have a very similar situation.
Taxpayer can rent for 3 years, then has option to go to bank for financing. And, If they've never been late with a payment and other things, then his sales price will be reduced by basically 33% for all of the payments he's made to date. He, may, on the other hand, continue to rent, and as long as he doesn't break the clauses in the rental agreement, he can own the property after approximately 30 years, with no additional money changing hands at the end of the 30 years. If he breaks any of the rental agreement clauses, then the ownership clause could be/ or may not be at owner's discretion, nulled. This isn't your standard rental agreement, nor is it an outright rent to own agreement or installment sale. How would you account for it as taxpayer and/or owner?
Thanks for any input here.

[S T]

Nothing definitive at least not yet

Just did a quick "google search" ended up on a IRS Lawyer Topic site

Could be a difference between "rent-to-own (sometimes called a land contract") and a "lease option"

Here is the link http://irslawyertax.com/how-is-the-o...ns-tax.irs-tax

As time permits I will keep looking

Sandy

[JG EA]

Also, if the sale hasn't actually taken place then it is reported in the year as it actually is that year. A pub (rental pub) says it should be reported as rental income. Then when the sale takes place it is a sale. The future sale may not work out and you can't call it a sale when it isn't yet.

[kpangelinan]

on this, as I have a very similar situation.
Taxpayer can rent for 3 years, then has option to go to bank for financing. And, If they've never been late with a payment and other things, then his sales price will be reduced by basically 33% for all of the payments he's made to date. He, may, on the other hand, continue to rent, and as long as he doesn't break the clauses in the rental agreement, he can own the property after approximately 30 years, with no additional money changing hands at the end of the 30 years. If he breaks any of the rental agreement clauses, then the ownership clause could be/ or may not be at owner's discretion, nulled. This isn't your standard rental agreement, nor is it an outright rent to own agreement or installment sale. How would you account for it as taxpayer and/or owner?
Thanks for any input here.

Hmmmmm.....so a true rental agreement (somewhat modified eh?) and then a gift at the end? I think it's possible tax wise. The recipient would have a basis of "0" in his property and the giver can give whatever he wants to whomever he wants for whatever price. Giver may have some "gift tax" issues, maybe....but I doubt that will come in to play unless the giver is wealthy and that would be for another thread I suppose.

So, renter just rents, periods. Then after 30 years, the owner, because of a personal agreement, decides to give the property to the tenant. I don't see anything wrong with that. I guess to make things legal, I would have the "gift" agreement separate from "rental" agreement. I mean technically, they don't need to have anything in writing. I've rented to family members and friends with just a hand shake. Then if the owner wants to give the property away, there are some deed and title issues, but that doesn't need a contract.

Just my initial thoughts.

[Terry]

Thanks

Thanks for all the replies.
Both agreements, for my client, are in writing, but as to whether it will actually be sold to the taxpayer, at some point in the future, is unknown.
The giver nor the taker are wealthy; for sure.
Giver, I guess, will show rental income, and taxpayer, is technically renting, until such time as the potential sale takes place.

Thanks again for the input and replies.

Terry