Tax Deduction On L/O's
Silly question here. But I have to ask. A friend mentioned to me that in a L/O the T/B can claim a tax deduction. Is this true? What do they need to do? I only ask because I have a T/B that is backing out of buy the house and doesn't want to do a L/O because she won't get the tax benefits.
Thanks in advance,
Scott 
It is generally true that the tenant-buyer does not get any of the tax deductions normally available to home owners.
Until the purchase option is exercised, the tenant-buyer is a renter and the seller is a landlord. The landlord retains all the tax benefits of investment rental property ownership and declares the rent paid as income.
Thanks Dave...That's what I thought....Guy I work with thinks he knows everything. So I just had to double check.
Perhaps your friend was really thinking about a Contract for Deed. The seller retains title to the property until the contract is satisfied, but the buyer gets all the tax advantages of home ownership during the contract term.
Perhaps your friend is a very sophisticated real estate investor and was referring to the tenant-buyer as the resident beneficiary in an equity holding trust (and renting the property from the trust). In this arrangement, the resident-beneficiary can claim mortgage interest and property tax deductions, just as s/he owned the property outright.
Bill Gatten, whose company is a proponent of this trust vehicle, affirms that, irrespective of the trust arrangement, the property is a "qualified residence" in accordance with the provisions of IRC 163(h)(4)(D).
[ Edited by DaveT on Date 08/29/2003 ]
Hmmm... Now how would that work. I have someone who wants to buy the house but can't afford the payment because she has bad credit. But doesn't want to consider a L/O because she won't get the tax benefit?
Scott
Your question is beyond the scope of this forum. Perhaps someone on the Subject To forum could walk you through the structure of a CFD.
If you are curious about the EHT, Derrick Ali is a channel partner here and is in the business of establishing Equity Holding Trusts.