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Old 06-06-2011, 10:53 AM
 
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Its regular income.,,,,,,, money for breaking a contract isnt an investment.
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Old 06-06-2011, 12:04 PM
 
Location: Manhattan
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Quote:
Originally Posted by mathjak107 View Post
Its regular income.,,,,,,, money for breaking a contract isnt an investment.
But when real estate possessary rights are involved, it seems the IRS may view differently than payment for avoiding a contract. A rent stabilized apartment is a deal between landlord tenant and STATE of NY. It can be for perpetuity. It does not fall under a normal landlord tenant lease contract. When one moves into a rent-controlled apartment one aquires an asset that can become quite valuable. Call it an investment or call it buying a Picasso for 50 pesos in 1901 that is worth $20 million today, it's likely a capital appreciation.

I am almost certain that giving up apartment rights for payment gets capital gain treatment.

I will go further: the tenant GETS Capital Gains Treatment.

If you can show me case law or IRS interpretations to the contrary please do so.

Last edited by Kefir King; 06-06-2011 at 12:14 PM..
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Old 06-06-2011, 12:54 PM
 
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We buy out our tenants leases regularly.. its reported on a 1099 as income to them. thats regular rate.

1099 income is reported as regular taxable income and gets no favorable capital gains rate

Last edited by mathjak107; 06-06-2011 at 01:03 PM..
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Old 06-06-2011, 04:51 PM
 
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dont be so certain my friend about it being a capital gain. your wrong. despite the fact that we have been doing this ourselves for a decade now and have been instructed by the irs to 1099 it , i did stumble upon a decent explanation on line from an irs spokesman.



" Q:When the apartment I was living in went up for sale recently, my roommate and I negotiated with the landlord to buy out our lease. (We were afraid that the new owner would evict us and move into our unit.) We each received $10,000 for moving out. Will we have to pay taxes on this money, and if so, where on the tax form do we list the income?

A: Yes, this is taxable income, says Internal Revenue Service spokesman Jesse Weller.

It is ordinary income -- as distinguished from a capital gain -- and would be listed on IRS Form 1040 in the space labeled "other income."

I don't know whether this would apply in your case, but Weller says that if you incurred any expenses related to the buyout -- such as fees paid to a lawyer who helped you negotiate the terms of the deal -- you would be allowed to claim them as deductions.

The deductible expenses would be listed on Schedule A, under "miscellaneous. " But remember: You can't deduct the full amount of your miscellaneous deductions from your income. Only the portion that exceeds 2 percent of your adjusted gross income is deductible
"

Last edited by mathjak107; 06-06-2011 at 05:03 PM..
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Old 06-06-2011, 06:00 PM
 
1,494 posts, read 2,259,269 times
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What's considered a good buyout ballpark for a rent controlled (not rent stabilized) apartment in Union Square? Just curious.

To the OP- the buyout isn't worth it unless:

1) you have another rent stabilized apartment with identical costs lined up to move in to
2) you're leaving NYC for a place with a much lower cost of living
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Old 06-07-2011, 02:17 AM
 
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every building and situation is different. while we may pay 50 to 100k in our building over looking central park thats because we are selling the apartments. if i was just going to re-rent them again and deal with rent stabilization we would pay alot less in fact very little.
it also depends on the age of the tenant and if anyone else lives in the apartment.

to many variables to give you an answer.
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Old 06-07-2011, 03:28 AM
 
64,675 posts, read 66,158,228 times
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Quote:
Originally Posted by mathjak107 View Post
dont be so certain my friend about it being a capital gain. your wrong. despite the fact that we have been doing this ourselves for a decade now and have been instructed by the irs to 1099 it , i did stumble upon a decent explanation on line from an irs spokesman.



" Q:When the apartment I was living in went up for sale recently, my roommate and I negotiated with the landlord to buy out our lease. (We were afraid that the new owner would evict us and move into our unit.) We each received $10,000 for moving out. Will we have to pay taxes on this money, and if so, where on the tax form do we list the income?

A: Yes, this is taxable income, says Internal Revenue Service spokesman Jesse Weller.

It is ordinary income -- as distinguished from a capital gain -- and would be listed on IRS Form 1040 in the space labeled "other income."

I don't know whether this would apply in your case, but Weller says that if you incurred any expenses related to the buyout -- such as fees paid to a lawyer who helped you negotiate the terms of the deal -- you would be allowed to claim them as deductions.

The deductible expenses would be listed on Schedule A, under "miscellaneous. " But remember: You can't deduct the full amount of your miscellaneous deductions from your income. Only the portion that exceeds 2 percent of your adjusted gross income is deductible
"
i just want to add googling around i did see references that lease buyouts should be taxed at capital gains rates . the big question is which way is it?

we were told by the irs its 1099 income and its taxed at regular rates. the irs spokesman on line reinforced that answer but in defense of what kefir believes there are some pretty well informed sites that say otherwise.

since its our business ill run with irs info but they might not be correct.

jury is still out on this one folks.
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Old 06-07-2011, 06:48 AM
 
Location: Manhattan
20,147 posts, read 26,435,766 times
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Quote:
jury is still out on this one folks.
I will agree with you on that point.
although I am still rather sure of my position.

Practically speaking it makes logical sense for the OP to treat it as a capital gain, taxed at a greatly reduced rate, and wait for the IRS to act. Since the matter is obviously in a bit of a gray area, the worst that the IRS will due is assess your taxes at a higher rate. I doublt if you'd even pay an interest penalty.

(I'll keep looking, although the internet is always lacking in case law...unless you spend a $jillion for the info.)
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Old 06-07-2011, 06:51 AM
 
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I think it would be an automatic mis-match questioned immeadiatly as we as landlords have no choice but to report it on 1099-misc..
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Old 06-07-2011, 06:55 AM
 
Location: Manhattan
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Quote:
Originally Posted by mathjak107 View Post
I think it would be an automatic mis-match questioned immeadiatly as we as landlords have no choice but to report it on 1099-misc..
Actually it is probably treated even by your company as capitalized cost rather than as an expense, especially if the amount was high.

You may be forced to report the expense in a certain way, but that probably does not affect the recipient's legal position. It being an expense to you does not automatically make it income for the tenant.
Practicaally speaking, the IRS wants to know EVERYTHING and are probably pissed they cannot legally force the issuance of 1099-CAP forms so they can catch capital gains so they give fuzzy advice hoping EVERYTHING is reported ALWAYS.

Last edited by Kefir King; 06-07-2011 at 08:19 AM..
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