Real Estate Option to Purchase

[equinecpa]

I have a client who was supposed to have a property close in 2012 but due to zoning delays it won't close in 2013.

She received a $25,000 option fee with absolutely no contingencies in August 2012, and then another $50,000 on Dec 31, 2012 (which didn't show up in her account until 01/03/13).

These are totally non-refundable options.

Are these income in 2012? If so capital or ordinary? Since she's selling an option to purchase I'd say capital. I'm just not sure they can (or should be) included in 2012 income.

Your thoughts?

Carolyn

[Roland Slugg]

Option payments are not taxable to the recipient until the year in which they either lapse or are applied to the sale. If the sale eventually goes through, they are treated as payments received in the year of sale. If the option lapses, they are treated as income that year, and retain the same character as the gain would have been if exercised ... usually LTCG or STCG.