Buying or Selling a Home/Home Taxation- Lease/Purchase
"I own a home that is paid in full. I have been offered a sales agreement where the party agrees to a 20 year lease purchase agreement.
Due to the new sale of home taxes for 2013, will I be charged any of the 2013 Surcharge tax on this transaction or would I be charged this surcharge on each month lease payments... or is there another scenario as to the taxes.
To do a lease/purchase correctly, Russ, and without incurring unwanted taxes, you really should put that transaction into three documents:
1. An option because that is what you are actually giving the buyer. Mind you, it's his option to buy and if he should change his mind, the option to buy is gone.
2. Lease agreement. This permits the tenant (that's what he really is) to occupy the property under the terms and conditions you have agreed to.
3. Purchase agreement. Sometimes, depending on how it is written, the option converts into the purchase agreement at the end of the option period. In which case, the purchase agreement is really not needed.
Under the option and/or lease agreement you're most likely going to allow the tenant/optionee to do any property modification and maintenance . . . up to a point of YOUR satisfaction. So, how much painting and rehabbing are you going to allow? That has to be expressed in the agreement. Further, in 20 years the property will likely be worth more dollars. How much more?
Since you have a tenant in YOUR PROPERTY for 20 years, you will have to treat the property like any other legal landlord. The rent you will receive is taxable depending upon your tax bracket. But you will also need to depreciate the property over the 20 years. The IRS demands this and 20 years is perfectly acceptable by the IRS.
You can see this is not a simple matter for taxes or otherwise. The property belongs to you for the whole 20 years and should you get into any kind of legal problem, it could be attached and the tenant could lose his tenancy in the process. So, I strongly suggest you consult with a REAL ESTATE oriented attorney to put your option/lease/purchase together. A CPA or tax attorney will disclose your tax concerns on the transactions. The property would still be part of your estate. You might inquire of the attorney the possibility of a non-revocable trust or if it is a family thing, a family trust, to see if it would be apropos in your case.
As part of this agreement, I would have the tenant/optionee pay for all legal and CPA fees. Whatever you do, don't minimize the importance of what you are doing here. Russ, I do wish you well.