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Lev
Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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Can I deduct my monthly land lease payments on my personal

Customer Question

Can I deduct my monthly land lease payments on my personal residence? I am paying the CA property taxes not the land owner. The home is not a mobile home it is a 433 manufactured home permanent fixed to foundation.
Submitted: 8 months ago.
Category: Tax
Expert:  Lev replied 8 months ago.
We need to be clear if you do NOT own the land - lease payments are treated as rental payment and as such are not deductible.
Expert:  Lev replied 8 months ago.
But if you have long time lease - at least for 30 years - then lease payments are treated as payments for the ownership interest. In this case part of lease payments are apportioned to interest and might be deductible as mortgage interest.However if your lease agreement is for less than 30 years - nothing is deductible unless you are using your home for business purposes.
Customer: replied 7 months ago.
Dear Lev, What Irs code are you referring to to verify your answer concerning land lease can be written off if lease is more than 30 years?
Expert:  Lev replied 7 months ago.
The 30 year period is not set in statute.See for instance following documenthttps://www.irs.gov/pub/irs-wd/12-0056.pdfWhether a lease is treated as a sale for federal income tax purposes is a highly factualinquiry, and a transaction can possibly be a lease for state law purposes and a sale fortax purposes, or vice-versa. The test for determining whether a transaction is a sale orlease is whether the benefits and burdens of ownership pass to the lessee. Numerousfactors determine if the benefits and burdens of ownership pass to the lessee, includingwhether the lessee:• Has acquired an equity interest in the property• Bears the risk of economic loss or physical damage to the property• Receives the profit from the operation, retention, and sale of the property• Has an option to purchase the property for a nominal price. See Grodt & McKayRealty, Inc. v. Commissioner, 77 T.C. 1221, 1237-38 (1981); Revenue Ruling 55-540, 1955-2 C.B. 39.The transfer or retention of title to the underlying property is not determinative.In additional -https://www.law.cornell.edu/cfr/text/26/1.1031(a)-1under § 1.1031(a)-1(c) of the regulations, if a taxpayer who is not a dealer in real estate exchanges real property for a leasehold interest of 30 years or more in real estate, the property exchanged is considered to be of like kind.See also instructions for form 1099Shttps://www.irs.gov/pub/irs-pdf/i1099s.pdfOwnership interest. An ownership interest includes fee simpleinterests, life estates, reversions, remainders, and perpetualeasements. It also includes any previously created rights topossession or use for all or part of any particular year (forexample, a leasehold, easement, or timeshare), if such rightshave a remaining term of at least 30 years, including any periodfor which the holder may renew such rights, determined on the date of closing..I appreciate if you take a moment to rate the answer.Experts are ONLY credited when answers are rated positively.If you still have any doubts, need clarification - please be sure to ask.I am here to help you will all tax related issues.
Customer: replied 7 months ago.
still do not understand. no legal mention of my land lease being treated as mortgage interest in the irs code you provided. nothing in code referring to 30 plus years remaining in lease. qualifies to write off land lease rent.
Expert:  Lev replied 7 months ago.
Can you clarify - what is the term of your lease contract?When that contact started and when it is ended?

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