Rent or lease to own

[Margaret CPA in OH]

Client has informed me that the LLC formed recently has a rented property that they want to sell to tenant.  I don't yet have a copy of the contract but info sent shows $3000 as down payment on lease option and it appears as though an additional $380 monthly over the previous rent will be payments.

I looked up basic info on accounting for this, seems fairly straightforward but is there anything I should look out for?  Maybe specific questions will bubble up when I get the contract and I'm in no real hurry.  I'm leaving for Australia and Papua New Guinea next week for a month of scuba diving. They didn't get their final data for 2015 to me until last Wednesday.  It seems they are ahead already this year!

 

[Max W]

This article may help.

http://www.fishercpafirm.com/blog/174-tax-treatment-of-real-estate-lease-options-houston-real-estate-cpa.html
The last item can be a problem, so the lease-to-own period should be no more than two to three years.  There may be state specific laws to consider as to this. 

[Margaret CPA in OH]

Thanks so much, Max!  Once I get the contract, I will do more in depth research, especially for this state - thanks for that tip. 

My CPA license gets renewed end of this year for 3 more so I've definitely decided on just 3 more tax seasons with NO extensions for tax year 2018.  The trusts on which I am trustee will be fully distributed that fall, yippee!  I'll be 73 then so enough but it's not too late to learn new things as long as it isn't too hard and I have this great group here.

[Lee B]

I had a somewhat similar situation with a client several years ago.

In my case, the tenant was unable to obtain financing and ended up forfeiting the the deposit plus the payments

above and beyond the monthly lease payment.

[Margaret CPA in OH]

I still haven't received the contract and won't really get into this until end of November but did you take the deposit into income at the time the tenant gave up?  From what I know of the current tenants with several late payments, it wouldn't surprise me that the same thing happens here.