Solved: Is the income from a lease buyout taxable?
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Is the income from a lease buyout taxable?

My business leases an office space. We have a 10-year lease in place. Our building just sold to new owners. Our new landlords want to utilize all the space in the building, thus they would like us to leave, but can't just kick us out due to our long lease. They offered to "buyout" our lease agreement. That is, pay us to change/cancel the lease and move our operations elsewhere. If we take the deal, would the payments we receive be taxable income? Capital gains? How do we figure out taxes on that?
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Is the income from a lease buyout taxable?

The proceeds received from a lease buyout are definitely taxable.  The more complicated question is whether or not it is treated as "Other Income" or Capital Gain. 

In some cases the tenant can receive favorable capital gain treatment on the lease buy out. Sec 1241 - states that amounts received by a lessee for cancellation of the lease shall be considered as amounts received in exchange for such lease or agreement. Therefore if the lease is a section 1231 asset, the tenant could recognize the lease termination income as capital gain.  Generally a lease held for use in a tenant's business is considered section 1231 asset. However in order to receive this treatment the tenant would need to have had the lease over a year and give up all ownership rights to the leases - meaning subleases or other rights of re-entry would not qualify the tenant for capital gain treatment.


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New Member

Is the income from a lease buyout taxable?

The proceeds received from a lease buyout are definitely taxable.  The more complicated question is whether or not it is treated as "Other Income" or Capital Gain. 

In some cases the tenant can receive favorable capital gain treatment on the lease buy out. Sec 1241 - states that amounts received by a lessee for cancellation of the lease shall be considered as amounts received in exchange for such lease or agreement. Therefore if the lease is a section 1231 asset, the tenant could recognize the lease termination income as capital gain.  Generally a lease held for use in a tenant's business is considered section 1231 asset. However in order to receive this treatment the tenant would need to have had the lease over a year and give up all ownership rights to the leases - meaning subleases or other rights of re-entry would not qualify the tenant for capital gain treatment.


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Is the income from a lease buyout taxable?

If you are 74 and retired do you still

have to pay taxes or file taxes for the buyout. Lived on property for 24 years. 

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