U.S. CitiesCity-Data Forum Index
Go Back   City-Data Forum > U.S. Forums > New York > New York City
 [Register]
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
View detailed profile (Advanced) or search
site with Google Custom Search

Search Forums  (Advanced)
 
 
Old 06-07-2011, 07:06 AM
 
Location: Manhattan
20,129 posts, read 26,407,309 times
Reputation: 9021

Advertisements

I found something pretty good:
Quote:
In addition, Code section 1234A was amended to apply for the first time to rights and obligations relating to interests in real property. That section now characterizes as "gain or loss from the sale of a capital asset" any "[g]ain or loss attributable to the cancellation, lapse, expiration, or other termination of . . . a right or obligation with respect to property which is (or on acquisition would be) a capital asset in the hands of the taxpayer . . . ." The amendment is effective for terminations occurring more than 30 days after August 5, 1997.
Section 1234A deals with a problem that arises because the Internal Revenue Code applies favorable capital gains rates only where the gain is realized upon the "sale or exchange" of a capital asset. If a contractual right or obligation is cancelled, extinguished, or otherwise terminated upon making a payment, the courts have held in a variety of situations that the recipient of the payment does not have a capital gain because the right or obligation was "extinguished," not "sold or exchanged." Section 1234A reverses this result by providing that the gain or loss "shall be treated as gain or loss from the sale of a capital asset."
The one real estate case that the Senate Finance Committee clearly had in mind, as described in the committee report, was "the tax treatment of amounts received [by a landlord] to release a lessee from a requirement [in the lease] that the premise [sic] be restored on termination of the lease."
That kind of payment to a landlord will now be given capital gain treatment.
Here's the legal site:
Roberts & Holland LLP

Basically Congress relaxed remaining restrictions on Captial Gains treatment in landlord-tenant dealings, removing a lot of the haze. They state clearly that a lease is a capital asset and such its "sale or exchange" gets capital gains treatment.
Quick reply to this message

 
Old 09-20-2012, 02:32 PM
 
1 posts, read 5,778 times
Reputation: 11
I realize the replies here come from a landlord not a tax accountant or attorney, however, it is NOT ordinary income. Kefir, you are king.. matha.. needs to do the math again...

In Stotis v. Commissioner, T.C.Memo. 1996-431, the Tax Court came to a similar
result in the case of a residential leasehold. Mr. Stotis, the petitioner, leased space in
an apartment building that he used as a residence. The landlord, desiring to use the
real estate for other purposes, entered into a surrender agreement with the petitioner
whereby the petitioner exchanged his right in the property for a cash payment. The Tax
Court held that the petitioner’s leasehold interest in a residence was a capital asset,
and that the petitioner’s sale of the leasehold interest constituted a sale or exchange,
taxable as capital gain.


Also see: PLR-104662-00

Based on the foregoing, we conclude that the amounts received by Taxpayer are
considered amounts received in exchange for Taxpayer’s leasehold interest in the
Premises. Further, we conclude that Taxpayer realized long-term capital gain on the
sale of the leasehold interest. Taxpayer’s interest in the Premises is either a capital
asset under 1221 or real property used in the trade or business under 1231. In
either event, gain realized from the sale of the leasehold interest is treated as long-term
capital gain. Payments of the legal fees and income taxes are part of the purchase
price to the extent that such payments are given in exchange for Taxpayer’s leasehold
interest and not for Taxpayer abandoning some other legal right or property not related
to the transaction in question.

boy oh boy.. isn't awful when people misguide others?!!
Quick reply to this message
 
Old 09-20-2012, 05:30 PM
 
Location: Manhattan
20,129 posts, read 26,407,309 times
Reputation: 9021
So then to close the ancient thread. The tenant would pay a maximum of
20% Federal Capital Gains tax plus 6.85% ordinary income to the state...26.85% maximum.
Quick reply to this message
 
Old 09-21-2012, 02:52 AM
 
64,529 posts, read 66,075,955 times
Reputation: 42973
i dont believe the irs in its rules has taken an official stance on this themselves as of yet.
in fact i dont think you can even find it spelled out in the irs rules and regulations.

the courts have defined a lease as a capital asset and fitting into certain sections of the tax code by definition but nothing official has been stated by the irs about it in black and white .

if i was a tenant i would certainly figure it for capital gains treatment as the courts more than not would rule in my favor but i cant find any official irs publication that actually spells it out specifically.


a lease was kind of wedged into being personal property and therefore any personal property sold unless a collectable would be subject to capital gains taxes and rates.

Last edited by mathjak107; 09-21-2012 at 04:02 AM..
Quick reply to this message
 
Old 09-21-2012, 03:07 AM
 
64,529 posts, read 66,075,955 times
Reputation: 42973
Quote:
Originally Posted by Kefir King View Post
So then to close the ancient thread. The tenant would pay a maximum of
20% Federal Capital Gains tax plus 6.85% ordinary income to the state...26.85% maximum.
maybe not if that gain trips the amt tax on all your other income. while i actually see 15% on our long term capital gains when we have them ,the triggering of the amt from the gain penalizes our other income and negates much of that 15% in effect. .

a nyc resident has another ballpark of 4% city tax to pay too.

20% comes into play in 2013 we are still at 15% for this year .

Last edited by mathjak107; 09-21-2012 at 03:17 AM..
Quick reply to this message
 
Old 09-21-2012, 06:14 AM
 
Location: Manhattan
20,129 posts, read 26,407,309 times
Reputation: 9021
Thanks Mathjack,

I THOUGHT it was 15% but I double checked before I posted and apparently googled up an ancient site that said 20%...I should have trusted myself.
I never generate a capital gain because any stock trading is done within a brokerage IRA and is this deferred income and then taxed as ordinary income when disbursed in dribbles.
So then the total tax bite would be 21.85% if one took the offer before the ball drop in 3 months.

Hey, that brings up a point. Could you put a lease into an IRA "they've gotten more liberal" and when it appreciate a gazillionfold with the landlord's buyout, there would be no tax consequences for a very long time (for some.) <meant MOSTLY as humor...but food for thought since they have greatly liberalized what you can hold in an IRA.>
Quick reply to this message
 
Old 09-21-2012, 06:17 AM
 
64,529 posts, read 66,075,955 times
Reputation: 42973
its hard to project what they will see overall just because the amt kicks in very easily. it has a phase out range so the damage can be minimal to very painful depending on their total tax picture. with us when it happens we get hit very hard being taxed just about a flat 28% from dollar 1 on just the federal.

thats a far cry from 20% marginal which is what your figuring.

which has money going through at 10 and 15% as well as the marginal rate.

why no city tax in your calculation?


How about is a verbal lease still considered personal property?

If you think about it the paper lease is what the landlord is really buying back from a tenant.

Thats whats squeezed into the capital asset definition by the courts..

Well what about a verbal lease where its the 2nd year and the tenant is an awful tenant and you want them out . so instead of going through a lengthy eviction process you offer to pay them to leave.

they have no actual lease and are month to month in effect.

hows that looked at tax wise ?...

Last edited by mathjak107; 09-21-2012 at 06:40 AM..
Quick reply to this message
 
Old 09-22-2012, 04:08 AM
 
64,529 posts, read 66,075,955 times
Reputation: 42973
Quote:
Originally Posted by Kefir King View Post
Thanks Mathjack,

I THOUGHT it was 15% but I double checked before I posted and apparently googled up an ancient site that said 20%...I should have trusted myself.
I never generate a capital gain because any stock trading is done within a brokerage IRA and is this deferred income and then taxed as ordinary income when disbursed in dribbles.
So then the total tax bite would be 21.85% if one took the offer before the ball drop in 3 months.

Hey, that brings up a point. Could you put a lease into an IRA "they've gotten more liberal" and when it appreciate a gazillionfold with the landlord's buyout, there would be no tax consequences for a very long time (for some.) <meant MOSTLY as humor...but food for thought since they have greatly liberalized what you can hold in an IRA.>
no you cant put a lease in an ira for many reasons .

hypothetically assuming you could put a lease in an ira, ,paying rent would not only trigger a taxable event but if your under 59-1/2 a penalty too. when you buy property in an ira you can only pay for real estate and expenses from ira money, no outside funds when you buy a rental property in a self directed ira.

the tax laws are very specific as to what can be held in an ira as an asset and leases and personal property are not any of them.


its not so far fetched hypothetically if you could get to hold long term commercial leases and sublet out the property in an ira for investment. of course the problem is the rent you pay on the property can never exceed what your allowed to contribute a year or else its tax and penalty time. but commercial leases in an ira arent allowed as of now either.

we do that now with commercial leases , but not in ira's of course. we hold long term commercial leases on property we dont own in manhattan in partnership with bernie spitzer ,elliots dad. we sublet out that property and turn a profit on it.

Last edited by mathjak107; 09-22-2012 at 04:47 AM..
Quick reply to this message
 
Old 08-10-2014, 08:16 AM
 
1 posts, read 3,990 times
Reputation: 10
Getting 100K for vacating Rent Stablized Apartment in NYC. What is Tax treatment. Capital gain/Regular income.
Quick reply to this message
 
Old 08-10-2014, 11:19 AM
 
64,529 posts, read 66,075,955 times
Reputation: 42973
if more than 1 year tax courts have ruled it qualifies for long term capital gains rates. however that does not mean a gain of that size won't trigger higher taxes elsewhere. that can trigger the amt tax on all your other income.

we trigger it everytime we sell a property or lease right. it can be another 14k in taxes over the normal taxes in our case. that is over and above what your total taxes would have been on the regular tax system.
Quick reply to this message
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.

Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.


 
Please update this thread with any new information or opinions. This open thread is still read by thousands of people, so we encourage all additional points of view.

Quick Reply
Message:


Over $104,000 in prizes was already given out to active posters on our forum and additional giveaways are planned!

Go Back   City-Data Forum > U.S. Forums > New York > New York City
Follow City-Data.com founder on our Forum or

All times are GMT -6.

2005-2018, Advameg, Inc.

City-Data.com - Archive 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35 - Top