Posted in

5 Ways to Improve Real Estate Marketing to Seniors

In 2020, more than 39 percent of homebuyers were over 55 years old, according to the National...

Digital Marketing for Real Estate Agents: 5 Rules to Know

Digital marketing works. There’s no getting around it. For something that didn’t exist just a...

5 Steps To A Healthier Home

Being healthy at home isn’t just about your diet. Sure, healthy eating is a wonderful...

3 Mistakes to Avoid When Entering the Real Estate Market

Real estate can be a tricky market to master. If you’re buying your first starter home or buying...

Home Improvement: Adding Flare to a Builder Grade Home

Purchasing a new home an exciting, emotional experience – and going with a professional builder...

Homes & Land Blog > Lease-Option Deals And Income Taxes

Lease-Option Deals And Income Taxes

ArticleThumb_LeaseUnlike traditional rent or purchase agreements, the lease-option deal offers investors and tenants little in the way of obvious tax benefits. How do these agreements work tax-wise and what pitfalls should you avoid?

During the course of the lease, the tenant is still the tenant. Until he buys the property from the landlord – who applies the lease-option fee and the rent premium (or credit) toward the purchase – he cannot deduct monthly rent payments from his income taxes (unlike mortgage interest and property taxes).

Since many tenants never consummate the sale, they wind up forfeiting the option fee and the rent premium, both of which are nonrefundable. However, if you use a corporation to purchase a lease option – then sublease the home to yourself but don’t complete the sale – the corporation can take the option and rent premium money it paid to the landlord as a capital loss.

Landlords have an easier time earning tax benefits. If a landlord sells his personal residence using a lease option, then he may exclude up to $250,000 of the gain on his income taxes (the Internal Revenue Service raises this limit to $500,000 for married owners). Note, however, that the IRS considers some investors as dealers, which significantly alters tax treatment.

Make sure that your lease-option deal is actually a lease-option deal and not a disguised sale. In other words, the price of the home should stay the same over the course of the lease. If the purchase prices decreases over a long period of time – and the tenant can purchase the home for a nominal amount at the end – that could spell tax trouble.

Finally, both landlord and tenant should work with local, reputable professionals with experience in lease-option tax treatment .

Ask a local Homes & Land real estate agent any questions you may have about home buying, or check out homes for sale.

Articles, Home Values, Credit & Mortgage, Buying a Home, Buying a House, Lease, Renting a Home

Select a Category

See all

Recently Added

Home-Buying Is an Emotional Process

We know the feeling.

You walk in through the front door of a home for sale, and you immediately sense that this could be the one. This could be where…

Read More »

Wellness Week: Healthy Cooking

We're spending more time in the kitchen than ever before. If you've taken some of our gentle advice to heart and have organized your kitchen space,…

Read More »

Wellness Week: Creating Space

Let's be very honest: we live in deeply uncertain times. With more and more to be anxious about in the current climate, now more than ever it is…

Read More »

Leave a Comment Below