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I am a cpa and have a client with the following situation.

He owns a commercial rental...
I am a cpa and have a client with the following situation. He owns a commercial rental property. On a section of the property two cell phone providers built a tower years ago and leased the space on the property from him. There are two leases, one from AT&T with a lease beginning date in about 2004, and one with Sprint with the lease beginning in December 2017. Both are 35 year leases. He is now selling these leases to a third party for a lump sum payment. What is the tax treatment on this sale?
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Answered in 10 minutes by:
3/6/2018
PDtax
PDtax, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 5,091
Experience: 35 years tax experience, including four years at a Big 4 firm.
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Hi from Just Answer. I'mCustomer and can assist. Thanks for asking for me.

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Customer reply replied 4 months ago
OK, great. I look forward to your response.

Can I get this to you tomorrow? Just getting to tax season dinner here.

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Customer reply replied 4 months ago
that is good. Thanks for the offer of the phone call, but I would prefer in writing. Thanks.

The site makes an auto phone call offer.

Back to you tomorrow.

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Customer reply replied 4 months ago
However, I don't mind paying a little extra. I just want you to make sure your answer is correct.

Let me see what the research time becomes. If you need a written opinion with cites let me know, and we'll price accordingly.

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I had a few minutes, so I started to look.

There is some potential for capital gain treatment. I would be curious about the original treatment of the original arrangements.

There is a PLR that sheds light on converting the revenue stream to a real estate interest. It's not completely on point, but it gave me an idea.

How was the original lease established for tax purposes?

I want to look at easements, as they would be cause gain sales. I've seen lifetime easements, but your lease terms have long term lives.

So, I will need to ask for some research time. I'll charge for 45 minutes. Let me know.

PDtax
PDtax, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 5,091
Experience: 35 years tax experience, including four years at a Big 4 firm.
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PDtax and 87 other Tax Specialists are ready to help you
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Customer reply replied 4 months ago
That is good. I was hoping you could do it for $38. :) Do you want me to send you anything, such as the lease agreements?

See requested items and email.

Brian

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Customer reply replied 4 months ago
I will get the leases and sale agreements. The income has been treated as rental income on the LLC return. Is that what you mean by tax treatment of original leases?

yes, as opposed to easements for the original agreements.

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Customer reply replied 4 months ago
Just sent the documents in a secure email from***@******.***. Please check your spam if you do not see the secure email. The sale is being handled by a broker. I spoke with the broker. He said he was not giving tax advice, but in his experience, a period under 50 years was not as solid of a case for capital gain treatment as over 50 years. He indicated that he had seen clients go down to 25 years and still claim capital gains treatment. He said his client might be willing to go up to 50 years if that made a difference to my client. Can you tell me a little about yourself and your practice. I am sure you are good since you are on justanswer and I have worked with you before. But just curious. Thanks
Customer reply replied 4 months ago
Regarding the tax treatment of the leases on the client's tax return, I was not aware that there was a lease in place and that special treatment was necessary. I have just been including the lease income as rental income on the tax returns. Is this what you mean by confirming original tax treatment of the leases with the carriers?

This is my 36th tax season. After a number of years employment in a Big 4 firm in tax and consulting, I have been my own boss for more than 25 years.

I asked about the original lease arrangement and the subsequent resale to see exactly what was being sold. You added that this was treated as rental income before these resale negotiations started.

I suspect you have 2-3 inherent problems with the treatment you would like. One is the abundance of online material on the subject promulgated by sales people and agents, none of which have the weight of actual tax law research. I suspect that state and local real estate law and practice may come into play as well.

Please confirm when you need my memo.

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Customer reply replied 4 months ago
The client would like to proceed with the sale as soon as possible, but would like to know the Tax consequences before proceeding. So your memo is what is needed to proceed. Please let me know when you will be able to have it for me. Thanks.
Customer reply replied 4 months ago
Or at least a tine estimate. I know research is somewhat unpredictable.
Customer reply replied 4 months ago
Hi, PD. Have you sent the results of your research yet? I have not seen it. If yes, where do I find it? If not, what is your estimated time line? I would like to get back to my client as soon as possible, as he is really fretting over it, and would like to move on with the transaction (or not). Thanks, Justin

I did not expect you would be looking for this memo right away. I planned to have your memo tomorrow. But, after review of all the additional facts, I can't deliver my memo on its original scope because it won't address your specific issues.

Without addressing your client's specific tax situation, which would add too much to the scope of what you want, as opposed to the original question. I have already spent more time than the quote on downloading and reviewing the hundreds of pages of agreements you sent.

I will tell you that I do not believe your agreements as written sell a capital asset under IRC 1221. The rental income you reported before this proposed sale was correctly reported, but causes some issues when resold. The agreement I saw would not qualify for capital gains treatment.

Since I want to be fair to you, and the scope of what you need is much more involved than our original agreement, I will not revise its terms but instead have the site refund your money.

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