Lease Option Tax Reporting
In March 2004 Purchased a single family home for $150,000 and lease optioned it to a tenant/buyer for 3 years at $189,000. Terms were $7,500 option money up front and $1,500 lease monthly w/$300 each month towards option price.
How do I report the income on my tax return?
Thanks very much!
Tompa
Best to take your option agreement to a licensed tax advisor, or CPA familiar with dealer dispositions. A thorough review of the language of your lease option agreement and your intent behind this deal need to be done before your question can be given a useful response
You will not be paying tax on the $7,500 option consideration until the option is exercised or the option is abandoned. If your contract states that the $300 per month is option consideration then it will be treated the same as the $7,500. If not, most likely it will be treated as rental income unless your tax preparer can argue that the $300 per month is "implied option consideration".