Relocation assistance from landlord

[Jeannette1]

I am getting a substantial relocation assistance from my landlord for a no- cause eviction (rent control area).

Is this considered taxable income ? Does the landlord have to file a 1099 ? I cannot find any information on the IRS website that addresses this issue.

[bwa · Accepted solution]

"Cash for keys" is a payment to the owner or tenant to vacate the property.  It doesn't matter if it is required by statute such as the Ellis Act or some other reason.  The substance is that it is payment for a a personal expense (moving) and is not deductible because the move isn't employment related.

Your situation is unique and I doubt that you will find a specific mention of it on the IRS website (it doesn't include every possible situation.)  However, here is one site (http://www.brickunderground.com/blog/2013/03/how_to_negotiate_a_buyout_by_your_landlord) that mentions it.  Note the site's point 12: 

"The tax consequences of a buyout. Payments for surrendering a lease are taxable at ordinary income tax rates.  It may be possible to structure a buyout to reduce the tax consequences."

Here's another (https://thebolditalic.com/how-to-negotiate-a-buyout-from-a-landlord-the-bold-italic-san-francisco-9e...) that comes to the same conclusion, noting .“It will be taxed at your marginal tax rate, which is your highest tax rate.”

If the payment is very substantial, you might consider approaching a local tax consultant familiar with the area of buyouts, but I suspect they will come to the same conclusion. 

[bwa]

A payment of "cash for keys" is fully taxable.  While the landlord might not be required to file a Form 1099, it is still taxable.

[Jeannette1]

I am not sure it's considered "cash for keys". It's mandatory for the landlord to give a relocation assistance in a rent control area if he evicts a person without good cause. Where can I find this information on the IRS website ?

[Rebbeshlomo]

I have the same question. Ellis Act Eviction and two mandatory relocation payments, one standard and an additional sum for disability. Is the disability sum at least not taxable? 

[ShirlynW]

It depends.  The IRS Pub 544 addresses the cancelation of a lease for payment. Page 2 states, "Payments received by a tenant for the cancellation of a lease are treated as an amount realized from the sale of property." The relocation payment is taxable.

I advise you to contact a tax professional, to address if the disability payment is taxable.

For more information

[normwheatley]

Hi,

read this [link removed]

while the money is earned income, it is not the result of emplym,ent so there's no employee tax on it

Norm

[normwheatley]

you can also ask chatgpt ... here's what i got ...

[Image removed]

[NCperson]

@normwheatley how do you know that a ChatGPT response is accurate?

I guess we don't need this Community Board anymore - we can just re-direct everyone to CharGPT  😃

[normwheatley]

hardly! I also asked Google's BArd and it gave me the opposite answer until i asked twice if it was really sure, then it changed it's mind. There's also an AI tax advisor ... and apparently there's one embedded in Intuit's turboTax. Anyway, i always triple check the answers. Dr Google and Co are only worth as much as you pay for it ... ie zero!