Lease Option and taxes

If you have title and sell after one year, you save big on taxes as compared to holding the property less than a year.

How do taxes work in a lease option, since you never take title?

Seller pays em.

Nice. So, I’ll pay just the 15% on my earnings?

Since you are never taking title, you are really in a sandwich lease option deal. Capital gains tax rates don’t apply.

Your income will be ordinary self-employment income. If you are in the 25% tax bracket, then your net income will be taxed at 25%. Another 15% will be taken by self-employment income taxes. Your total federal income tax bite will most likely approximate 40%.

State income taxes take their cut, too.