I have a tax question regarding a Lease Option Refinance. My tenant buyer is finally purchasing the property after 2 years 5 months in the lease to purchase contract. I have found a lender that will allow the buyer to refinance the property rolling all closing costs into the loan.
How are the capital gains treated? Are they taxed the same as a purchase? Is there a benefit to me as the owner for having my buyers refi?
Any comments would be extremely helpful.
Thanks in advance
Paul
If you did a “lease with an option to purchase” then they are not techniquely refinancing. They are purchasing the property on the date that it closes, and it would be taxed as a long term capital gain (sale of asset owned for over 1 year). A “lease to purchase” or pretty much a contract for deed, where part of the rent is going towards principal, is normally considered an installment sale and would be taxed as a short term gain (ordinary income) if it was ENTERED INTO within less than a year of you purchasing the property, and as a long term gain if it was entered into after a year of you purchasing the property. I’ve forgotten if the long term capital gain tax is 15% or 18%. Maybe somebody else can help with that. I think it’s 15%.