Real Property: Sale-leaseback Arrangements

A sale leaseback arrangement involves a sale.

When you sell a house, the difference between what you receive and your basis (the original purchase price plus any capital improvements) is potentially taxable as a capital gain.  However, if you owned the house and used it as your principal residence for at least two of the previous five years, you can probably exclude up to $250,000 in gain if you are single or $500,000 if you are married and file a joint return. 

The person who leases your house to you will enjoy the benefits of home ownership: deductions for expenses and depreciation. Income tax will be payable with respect to the lesae income.

NOTE: Be sure that the sale is close enough to the value of the house to satisfy the IRS as a real sale such as one that would occur in an arms length transaction between two unrelated parties. If the sale is for well below market value, the IRS may argue that there is a gift subject to gift tax, and not a sale. For an idea of the value of your home, consult a local real estate broker or look online at such sites as www.zillow.com

Please share how this information is useful to you. 0 Comments