How do I record a sale of rental property that was "rent to own"?

[lbiehl]

I recorded all rents received as income already. how do I dispose of and record a sale of rental property that was "rent to own"?

[ToddL]

Did you receive any additional funds at closing, i.e. above what you had already received in rent? Also, did you claim depreciation over the term of the rental?

[lbiehl]

No additional funds, and yes the property has recorded depreciation over the term of rental

[lbiehl]

*has recorded depreciation

[ToddL · Accepted solution]

The tax treatment of this transaction depends on a number of factors - there is no "bright line" test for whether this was an installment sale or a true lease with an option to buy.  If the lessee had a right to recover a portion of the rent had he chosen not to purchase the property, it would likely have been an installment sale.

Assuming the simplest case - it was a rental and you didn't receive any additional funds at closing - you can probably report it as a sale of rental property for $0. Your basis for calculating any loss or gain would be your original cost plus the cost of any improvements less depreciation claimed while a rental property.

The following post provides a detailed discussion of this issue. Be sure to select "See entire answer" if it appears.

https://ttlc.intuit.com/replies/4870039

[ygarza0413]

no other funds received other than rental income.  We paid all expenses taxes and insurance.

[DianeW777]

Please clarify:  

1. Do you have a sales agreement?
2. Do you have an amortization schedule for payments showing principal and interest?
3. Is the 'rent' considered payments to you for holding the mortgage?
4. How does the contract discuss the payment of taxes, insurance, etc?

Please include more details about your installment sale if it has actually taken affect in 2023.

@ygarza0413