We have a lease purchase agreement the tenant is paying $1500/mo. $1250 is rent and $250 is a deposit toward the purchase. The purchase option can be exercised between the 25th and 48th month of the lease. If the option is not exercised the $250/mo is forfeited. Landlord did not want to purchase outright until he was sure he could make a go of it and landlord has a mortgage and can not transfer title so this is not meant to be a installment sale.
Is the $250 held as a deposit and recognized as income when the sale occurs or must it be recognized as income when received (cash basis business)
