How to enter a lease-buyout as Capital Gains and not Ordinary Income

Forum|Forum|3 years ago
January 18, 2023
3 replies
41 views

Hello,

This year I received money as a result of a lease buyout of the home I was renting. I rented this home for more than 1 year and my research indicates this should be taxed as Capital Gains and not Ordinary Income.

Upon researching similar TurboTax support articles, users were instructed to enter this type of income as Less Common Income - Miscellaneous Income. However when entering information this way, it is processed at the Ordinary Income tax rate and not Capital Gains and significantly alters the federal and state return amounts.

How would a user enter this type of income and indicate it should be taxed as Capital Gains?

Referenced support article
https://ttlc.intuit.com/community/taxes/discussion/how-do-i-report-income-from-an-apart[product key removed]t/00/209701

TurboTax Deluxe Online

Critter-3

Level 15

If you were the renter and they paid you to get out then it is ordinary income on Sch 1.

mikeyruseAuthor

Level 2

I appreciate the quick response. While that's one opinion, it's certainly not a consistent one. There are other guides suggesting it should be taxed at LTCG. Can you source the relevant tax code that makes you think it's Ordinary Income? Thanks.

Critter-3

Level 15

If you were the OWNER of the property and you got more money in the sale then that is capital gains.

But if you were just a renter and they paid you money to end your lease early (often referred to "cash for keys") then that is simply ordinary income and a 1099-misc should have been issued. The situation you cited was about an owner of the residence and not the renter.