Discussion:Leasehold interest
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Discussion Forum Index --> Accounting Questions --> Leasehold interest
| 12 May 2008 | |
| My client bought a restaurant and started a new business. What do I do with leasehold interest? We still pay rent for this place on top of leasehold.
Do I have toamortize leasehold interest? | |
RoyDaleOne (talk|edits) said: | 12 May 2008 |
| Your statements and questions need expalnation.
1. brought a restaurant, or 2. started new business (what new business)? 3. the leaseholds consist of what? 4. pay rent on top of leasehold, what does this mean? | |
Samal14852 (talk|edits) said: | 12 May 2008 |
| The escrow statement says "leasehold interest"-I assumed that he bought a place. My client started a new business by buying a restaurant althoygh there is only one escrow statement for "leasehold interest".
The leaseholds consist of F&F-$6K and leasehold interest $148K. But he is still paying monthly rent. I am confused if this is a capital lease or operating. I am not sure if I have to amortize this lease or not. Thanks | |
RoyDaleOne (talk|edits) said: | 13 May 2008 |
| A leasehold interest in real property is an intangible right to use or posses tangible property.
Code Sec. 178. Amortization of cost of acquiring a lease Capitalize and amortize over remaining lease term. | |
| 13 May 2008 | |
| I think the seller is trying to pull a fast one. It appears to me that he is attemping to classify the transaction as a sale of ยง1231 assets, subject to tax at a capital gains rate instead of a sale of fixed assets and smallwear, subject to recapture & ordinary income.
A lease has an actual cash value or fair market value only when the rights granted under the lease exceed the payments. Ex: Joe leases a store for $800/month, but the fair rental value is $1,000 per month. This FRV in excess of payment has value. Say it's a 5 year lease. $200 X 60 months = $12,000 - discount for interest. Getting L/H interest to $148,000 is way over the top. In order to protect your client, I suggest that you look into preparing Form 8594, Asset Allocation Statement, with his income tax return. This should match the one being filed by the seller (in the unlikely event he is filing one). Will there be a conflict? Of course. I would discuss this with your client's attorney. | |
| May 14, 2008 | |
| How long is the lease term, Samal? I think it is easy to make assumptions. My guess is that for some reason the owner didn't want to sell the property (perhaps for the reasons Marcilio stated, perhaps for personal reasons), but that doesn't necessarily mean that the seller is "pulling a fast one." The practice of holding properties on a leasehold basis is quite common in Hawaii. | |
| 18 May 2008 | |
| Thank you everybody! I agree w/RoyDaleOne regarding amortization. It is intang.property. | |
