For the seller, the payment of the option can be treated as a down payment or a first payment of the transaction. The total amount of payments may ultimately contribute to a capital gain or loss, both of which have a tax impact. Rental income also contributes to capital gains. The seller can no longer claim depreciation on the property if they are no longer considered owners. The IRS has classified these transactions as storm sales and not as leases and specific rules may apply to the IRS at the time of taxation. A portion of the buyer`s rent can sometimes be classified as interest and would therefore be tax deductible. Section 5 includes the conclusion of the sale and purchase of the property. A leasing option works very similarly to a lease purchase because it consists of two contracts and theoretically allows the tenant to acquire the property in the end. However, the tenant does not sign a sales contract, but an option contract (“option contract”). Leasing agreements can also benefit owners of rental properties. This looks a lot like a down payment on a sales contract, which is why the leasing option and the purchase of leasing are so often confused. A leasing option also provides for the “cross-by-default” rules and the above option fee is generally not refundable.
When choosing a tenant option owner to exercise his option to purchase the property, the option fee is usually credited on the purchase price, but an additional down payment may be required if the parties execute the sale contract. As a general rule, the seller wants the tenant to give a non-refundable payment in advance to “buy” the option to buy the property later. This payment is called an “option” and can be any amount. It “locks” the tenant`s purchase option, even if the landlord has a change in attitude afterwards. The buyer asks for bank financing and pays the seller in full at the end of the life. While the option money generally does not apply to the down payment, part of the monthly rental goes towards the purchase price. For this reason, the monthly rent is generally higher than the fair rental value of the market. The money in the option is rarely refundable, and while no one else can buy the property during the option period, the buyer can sell the option to someone else. The buyer is not obliged to buy the property; If they do not exercise the option and buy the property at the end of the option, it simply shuts down. Article 6 deals with communications to be recorded on the title to the land registry.