Deduct ground rent of home on leased land

[Zee]

I learned something new today and thought I'd share it here. There was an article in the St Petersburg Times on manufactured homes on leased land here in Florida. As you're probably aware, the escalating land values (especially on the water) are resulting in the sale of mobile/manufactured home parks and the residents are often given the option of either a collective purchase of the whole park, or moving. The article also mentioned another situation where these homes are on long-term leases from the land owner and indicated the rental/lease payments were deductible. I didn't know this. But, apparently IRC 163(c) permits homeonwers living on leased land to deduct their ground rental payments if (a) the lease is for at least 15 years, including renewal periods, (b) the land lease is fully assignable to the buyer of your home, (c) the land owner's interest is primarily a security interest (similar to a mortgage), and (d) you have a current or future option to buy the land beneath the home. All four tests must be met. I hope I wasn't alone in not knowing this.

[OldJack]

(c) Redeemable ground rents
For purposes of this subtitle, any annual or periodic rental
under a redeemable ground rent (excluding amounts in redemption
thereof) shall be treated as interest on an indebtedness secured by
a mortgage.

What is the definition of "redeemable" ground rents? I have had clients with ground rent but have not seen "redeemable" ground rent.

[Zee]

What is the definition of "redeemable" ground rents? I have had clients with ground rent but have not seen "redeemable" ground rent.

A ground rent is a "redeemable" ground rent if all of the following are true.

Your lease, including renewal periods, is for more than 15 years.

You can freely assign the lease.

You have a present or future right (under state or local law) to end the lease and buy the lessor's entire interest in the land by paying a specific amount.

The lessor's interest in the land is primarily a security interest to protect the rental payments to which he or she is entitled.

The definition seems to be the same as the conditions noted previously.

[OldJack]

A ground rent is a "redeemable" ground rent if all of the following are true.

You have a present or future right (under state or local law) to end the lease and buy the lessor's entire interest in the land by paying a specific amount.

I would guess that an option at a "specific amount" would keep most land leases from qualifying as why would the land owner be willing to give a specific amount when land values increase every year.

[Zee]

I would guess that an option at a "specific amount" would keep most land leases from qualifying as why would the land owner be willing to give a specific amount when land values increase every year.

I'm no expert. As I indicated, I wasn't even aware of the deductibility of ground rents. In Florida, such situations do exist. The article indicated that such leases were created by land developer's as an inducement/incentive to help people afford homes. Many of the leases noted were for 100 years, and did include a specific amount. Many Florida land values have only recently seen dramatic price increases. But, I have no idea how many such leases exists in Florida, or other locations.

[Bees Knees]

Redeemabel ground rent is deductible as mortgage interest paid.

TTB, page 4-13 covers the rules for whether or not a lease is considered a redeemable ground rent.