A taxpayer entered into a lease purchase agreement (as the lessor) for her rental house with her renter in 2014. Does she recognize the entire gain/loss on the sale on her 2014 return, or does she use the installment method to recognize it. The renter is making payments over a 15 year period with the option to buy it at the end of the period for a nominal amount.

ANSWER

The BIDaWIZ Team's Answer:

We would need to know more about the nature of the lease such as...

Does the lessee obtain any equity?
What are the amount of the rental payments in relation to the purchase price?
What is the option price?

Having said that, these types of arrangements are generally treated as installment sales as per IRC Section 453.

References: IRC Section 453; IRS Publication 537
State: Tennessee