Real Estate Lease Option

[Snaggletoof]

Answering the question

Let's concentrate on Sandy's question. She has over and over again asked about tax treatment, and the rest of us have over and over again told her to pursue legal action. She has repeatedly told us she is not going to be involved in that. Although I agree there should be legal action, I'll revert to her original question.

I agree that a single agreement cannot be 50% rent and 50% purchase simply because the owner wants to report it that way. If so, he is misreporting worse than Sandy's client. The deal is either ALL rent and no purchase, or NO rent and all purchase. If her client is paying rent, there is no deduction or benefit, unless that state has something like "renters' credit" on state taxes. If her client is buying the place, he can deduct interest, also taxes if he is paying them.

If there is a desire for this guy to roll over and succomb to the landlord's every fickle plan, and allow him 50% rent and 50% sale, then one of the posters has suggested that the owner sell him a half-interest, and rent the other half to him.

[DTS]

Clarification

I agree that a single agreement cannot be 50% rent and 50% purchase simply because the owner wants to report it that way...The deal is either ALL rent and no purchase, or NO rent and all purchase. If her client is paying rent, there is no deduction or benefit, unless that state has something like "renters' credit" on state taxes.

Snags,

Am I assuming correctly that you are saying UNTIL the lease option is exercised that the renter IS able to deduct the full amount of the lease payment until such time of the exercise? In otherwords, he would deduct the full $2,100 per month until the exercise?

Sorry to be so dense, just a little tired right now, but wanted to understand this fully.

Thank you,

Dennis

[Snaggletoof]

Clarification

Dennis, I assumed the taxpayer is living in this place as his personal residence, thus would not be able to deduct rent. If he is renting the place for business purposes, then he deducts rent if this is a rental agreement, and deducts depreciation, taxes, repairs, etc. if it is a purchase agreement. I should not have assumed this to be a personal residence, Sandy certainly did not say so.

My entire point, I suppose, is that this cannot simultaneously be 50% rent and 50% purchase. It is all or none. The landlord can achieve this by selling him a 50% interest in the property and renting the other 50% to him. He can also enter a rental-purchase agreement where there is no "bargain" payoff. If this happens, rent must be reported until the point of exercise, then a purchase if exercise.

[DTS]

Thank you...

for explaining this. From the prior posts, this is what I understood to be the case.

Dennis

[S T]

Use of Property

Sorry, if I did not make it clear about the use of property. It is a residential home.

The taxpayer rents the property for his business, which is a residential care facility licensed for 6 clients by the State of California. The clients live there, and staff is there on 8 hour shifts.

The taxpayer does not reside at the property.


Sandy