Discussion:Principal Residence Sale
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Discussion Forum Index --> Tax Questions --> Principal Residence Sale
| 6 February 2006 | |
| Under the law you must have owned and lived in this house. I have clients that entered into a lease-purchase agreement two years ago. It was even recorded at title as a lease purchase. They have treated the payments as rent and the original owner wrote of interest etc. Could 'owned' be stretched to the point that they could sell immediately upon closing and avoid the gain? | |
| 7 February 2006 | |
| I'm having trouble wrapping my brain around this one.
Obvious answer: No. They didn't "own" the house, they were "renting" it. Less-obvious answer: What gain? If they were "renting" the house until the day they "owned" it, clients have no gain because their basis is the FMV of the house on the day they finally become owners, which is presumably the price they sell it for that day. Head spinning. | |
| 7 February 2006 | |
| With lease purchase contracts the purchase price is preset at the original date. FMV as of that date with a average appreciation rate per year. If the FMV falls below the preset sales price than the price is dropped down - if the FMV is above the preset price then they win. | |
| 7 February 2006 | |
| Sounds like a great scam all around. Having no idea about the answer to your question, I will bow out. | |
| 7 February 2006 | |
| I understand lease-purchase agreements and would generally say that such agreements will sometimes qualify as home ownership. However, this arrangement sounds like it might bee an equity appreciation sharing arrangement.
Under the Blanton decision, decided under former Sec.121, a taxpayer need not be on title if he assumes the benefits and burdens of home ownership. The Tax Court identified at least 6 factors in making this determination -- the right to rent to others, responsibility for obtaining insurance, bears risk of loss under local law, pays property taxes, has unlimited right to improve home without titleholder’s consent, and has unrestricted right to transfer property without titleholder’s consent. I am not really sure whether your clients had any of the above mentioned factors in their favor. | |
| 7 February 2006 | |
| Thank you Riley. I was trying to stretch my thinking by the fact this lease purchase was actually recorded at title. Back to the basics of benefits and burdens of owning the home. In all lease purchases that I've worked with the 'tenant' can move out at anytime. They would just relinquish their option consideration funds. If the 'tenant' breached any of the terms then the owner could void the lease purchase. Also, the 'tenant' could under no circumstances place this house under another contractural agreement during this time. | |
| 16 June 2006 | |
| another question based on Riley2 answer. Taxpayer lived w/parents for many years. In 2002, parents gift their residence to taxpayer and he kept doing mortgage, prop taxes and other payments without actual transfering till 2003. In 2005(less than two years since property was recorded under taxpayer name and new loan obtained) taxpayer sold house. He used the house as his personal residence for at least 2 years during the 5 year period....he "assumed the benefits and burdens of home ownership" for at least two years but...he owned (recording and new mortgage) for less than two. What would you do? | |
| 17 June 2006 | |
| I see no reason why the recording date would be relevant here. In fact, even if the deed was never recorded, it appears that the taxpayer was the owner, starting in 2002. | |
| 30 November 2008 | |
| What happens if you do a conditional sale (lease option to buy) seller takes down payment and part of the buyers payments ago towards purchase price and the buyer does not exercise option to buy.
1. what is the tax treatment of payments when made? how are they applied 2. when the option is not exercised how does the seller treat the payments that were applied to the sale? and the deposit? Neil | |
| 1 December 2008 | |
| neil CPA, try to search using your name + lease + option, you will see that you have asked this question several times and still can't seem to accept the answer. [click here] | |
