Skip to content
×
Try PRO Free Today!
BiggerPockets Pro offers you a comprehensive suite of tools and resources
Market and Deal Finder Tools
Deal Analysis Calculators
Property Management Software
Exclusive discounts to Home Depot, RentRedi, and more
$0
7 days free
$828/yr or $69/mo when billed monthly.
$390/yr or $32.5/mo when billed annually.
7 days free. Cancel anytime.
Already a Pro Member? Sign in here

Join Over 3 Million Real Estate Investors

Create a free BiggerPockets account to comment, participate, and connect with over 3 million real estate investors.
Use your real name
By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.
The community here is like my own little personal real estate army that I can depend upon to help me through ANY problems I come across.
Tax, SDIRAs & Cost Segregation
All Forum Categories
Followed Discussions
Followed Categories
Followed People
Followed Locations
Market News & Data
General Info
Real Estate Strategies
Landlording & Rental Properties
Real Estate Professionals
Financial, Tax, & Legal
Real Estate Classifieds
Reviews & Feedback

Updated about 6 years ago on . Most recent reply

User Stats

36
Posts
10
Votes
Teresia Sayler
  • Investor
  • Snohomish, WA
10
Votes |
36
Posts

tax treatment for lease option income

Teresia Sayler
  • Investor
  • Snohomish, WA
Posted

What is the tax treatment for the different income streams from Lease Options?  Is the Option fee self employment income (business income) when rec'd by a "future potential buyer"?  Can the monthly income be "rental income" reportable on schedule E, even if you don't own the property yet,  as in a sublet situation (you yourself are in a lease option arrangement on the same property)?  If so, you'd be able to deduct the rental payment you make to the seller if you yourself are subletting, until you exercise the option, as well as any other normal landlord type expenses?

Most Popular Reply

Account Closed
  • Specialist
  • Paradise Valley, AZ
2,935
Votes |
3,447
Posts
Account Closed
  • Specialist
  • Paradise Valley, AZ
Replied
Originally posted by @Michael Plaks:
Originally posted by @Account Closed:
Originally posted by @Michael Plaks:

@Teresia Sayler

It's legal to do Lease Options and collect Option fees in Washington and Arizona. 

You're not paying attention to the discussion, Mike. It's legal when you OWN the property. She does NOT own the property - she has it under LO herself. Until she exercises her option, she is merely a renter. So my non-lawyer opinion is that she cannot legally sell this property, LO or otherwise, until she exercises her own option.

 Correct. She can not sell a property she doesn't own. Since she has a sub-lease/option, it is not a sale. It is an Option to the sub-optionee. If and when the sub-leasee/optionee decides to exercise the option and fulfills the agreement and the option, she is then forced to complete her option agreement (buy the property if only for a few hours) and pay the original seller before she can close on the sub-leasee/optionee. It's called a double closing. 

Loading replies...