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Old 11-18-2014, 07:14 PM
 
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Quote:
Originally Posted by mathjak107 View Post
it is bad enough a landlord has to pay a tenant to leave but to help them commit tax fraud is a bit much to ask.

personally i would like to see it taxed as ordinary income for the receiver. it was not an investment and they had no capital at risk in the process.
I'm not suggesting any illegal activities which no landlord with significant assets would engage in, but more the typical shady and unethical deals that goes on for investors with lots of assets. e.g. something along the lines of agreeing to a 3 month grace period for which the tenant can back out of the agreement. Then during those three months he/she moves to Florida and at that point the payment is made. He/she would then not be a legal resident of NY and thus not subject to NYS/NYC tax. At the same time his/her right as a rent controlled apartment tenant is protected, and thus his/her asset (the lease) theoretically has the same market value/tax basis he/she possessed prior to the agreement. This is all hypothetical, but I know that you have real estate experience and am just wondering if you've see things like this done. Certainly it's unethical, but not fraud. But obviously it's too troublesome for landlord to engage in unless it's a 300k buyout for a Central Park South apartment paying $100 a month in rent.

This sort of stuff goes on all the time. Lawyers/bankers make a great living doing this sort of stuff. How do you think the rich builds multi-million dollar IRAs, many people contribute multiple times the IRA limit to their 401k and would never have a multi million dollar 401k. And we all know this can be accomplished through "fraud-like" though not illegal accounting.

As for whether it should be taxed as ordinary income I would say it shouldn't because it does actually have monetary value or else the landlord wouldn't be paying it. Whether it's an investment that they consciously entered into makes no difference. If there was no capital at risk then that's taken care of by the tax laws in that the tax basis is the full amount of the buyout.
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Old 11-19-2014, 02:37 AM
 
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all things have monetary value but that does not mean they qualify for long term capital gain rates,. in fact gold does not.

collectables do not either ,things like art ,cars ,baseball cards etc.

ny has simple rules ,any money earned here is taxed here . so no matter how you delay or manipulate it wouldn't matter.

in fact in march we sold lease rights we owned in manhattan on commercial property in a kind of landmark deal because they sold for so much . .

my son lives in new jersey and has to file a ny tax form just to pay taxes on that sale since he is a partner .

the special capital gains rates were really designed for cases where double taxation exists such as public corporations. the share holders are taxed on the corporate level and then again on a personal level so it was really geared to offset some of that and encourage putting money in to ownership of companies to sustain their growth.

it wasn't designed to just cut someone slack because they owned something of value.

paying someone to break a contract which is what thay payment really is ,is not an investment anymore than charging to get out of anyother contract would be.

it may have value but that is not an investment..

Last edited by mathjak107; 11-19-2014 at 03:12 AM..
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Old 05-13-2015, 08:17 PM
 
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This is to provide some guidance on how to treat the income from a lease buy out. In a rent control area I would treat it as a LT Capital Gain. Hope this helps.


From IRS PLR 8704009 , October 22, 1986
In McCue Bros. & Drummond, Inc. the court held that payments received by taxpayers in return for vacating and surrendering a premises leased under the New York City Rent and Rehabilitation Law qualified the gain as long-term capital gain. In distinguishing situations where payments for the release of contractual rights were treated as ordinary income, the court stated that the right of possession is a more substantial property right than is a mere contractual right, such as an exclusive agency, and that the surrender of such a property right seemed closer to situations where gain derived by the holder of a life estate upon sale to the remainderman was determined to be capital gain. McCue Bros. & Drummond, Inc., 210 F.2d at 753.
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Old 05-14-2015, 02:00 AM
 
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the thing you missed is PLR = private letter ruling ,not general tax law . it means in that instance only and not general tax law that was the irs stance .

there are other plr rulings where they intentionally stopped short of saying it can be treated as a long term gain and just stated it could not use the tax free exclusion of gains primary residences have and the folks involved did not get the green light to take it as a LTG. there is nothing in our tax law that allows it to be taken as a LTG so if you open a case for a plr to get the green light you run the risk of not getting that okay ..

it is perfectly legal with plr's rulings to be audited and told you couldn't take it as such and that ruling would stand.

there is a reason it is not general tax law and only a plr.

it is because the irs is divided on this and does not want to rule but leave it open ended .

i would certainly take it as long term gain , not ask for a plr on this and worry about it if challenged but it could be challenged and reversed on you.

as far as how many were audited and told no good , i don't see any data on that.

Last edited by mathjak107; 05-14-2015 at 03:29 AM..
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Old 06-14-2015, 09:03 PM
 
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The LL will pay me to vacant my apartment in which I lived 20 years. I am 68 years old, my husband 70. The building is converting from Mitchell Lama to COOP.
How we'll be taxed on our joint tax return
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Old 06-15-2015, 02:12 AM
 
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read the above , it was already discussed. no one knows your tax situation . other than you may want to chance taking it as a long term capital gain no one can tell you anymore than that.

as far as at what tax rate , it is income and will be lumped together with all your other income .

you can be taxed anywhere from zero if you qualify for the zero capital gains bracket all the way up to being on the amt tax . it all depends on your total situation.

just be aware there is no official tax ruling as far as taking the gains as long term capital gains vs regular income and you could be challenged taking it as a long term capital gain for the reduced rates. to date there are only PRL'S or private letter rulings which are rulings on individual cases not tax law,

Last edited by mathjak107; 06-15-2015 at 03:23 AM..
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Old 07-07-2015, 10:02 AM
 
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How does one figure 15% to 40% ordinary tax on the sale of rent stabilized apartment in New York City?
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Old 07-07-2015, 01:39 PM
 
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it gets added to your regular income. it may trigger the amt tax too depending how much is involved.
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Old 07-07-2015, 02:31 PM
 
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Quote:
Originally Posted by Edward Curtis Williams View Post
How does one figure 15% to 40% ordinary tax on the sale of rent stabilized apartment in New York City?
You aren't "selling" an apartment RS or otherwise because you do not OWN it.

RS leases are bought out for cash value. Meaning in exchange for a sum of money the tenant is surrendering his or her lease and all rights contained wherein. As part of the process said tenant will vacate the unit.
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Old 07-08-2015, 03:10 AM
 
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we all kind of knew what the poster meant .

some tenants would be smart to find ways of ditching as much income as they can if they are selling their lease.

maxing out a 401k or hsa or anything else you can do to get in to that 15% tax bracket which has capital gains rates of zero.

with the irs split on its view of it qualifying for long term capital gains rates if it was me i would go for it. let then come back and say other wise .


i am only working part time for just another 3 weeks and then done so i had them max out my 401k over the last 6 months instead of a year and got rid of 24k in taxable income .

also sent in an estimated state tax payment so i can write that off too . i am hoping to be in the zero capital gains bracket my first year retiring so i can sell off some funds tax free or do some roth conversions.

so there are ways a tenant can try to shed income to get in to that zero capital gains bracket.

Last edited by mathjak107; 07-08-2015 at 03:48 AM..
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