Yes, with a capital lease the lessee depreciates the property and deducts the interest payments. If the lessee pays the property tax then the lessee would deduct those also. The lessor would report ordinary income equal to the difference between the lease proceeds and the cost of the property. The portion of the lease proceeds that represents interest would be reported as interest income. Any interest on a loan the lessor has on the property would be deducted by the lessor as interest expense.
**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
