Do You Have a Lease or a Conditional Sales Contract?

Susan needs to determine whether she has a lease or a conditional sales contract before she can decide if her payments are tax deductible.

XYZ Real Estate Company has presented Susan with a contract for a commercial property space.  This is for a free-standing building that has been listed “for sale”, but Susan is not able to purchase the building through a bank or other lending institution.

She is presented with a contract that will allow her to make lease payments, but also gives her an option to purchase the building later.  If Susan decides to purchase the building at the specified option date, a portion of the lease payments made will be applied to the down payment.

This is a conditional sales contract, because Susan can take ownership of the property with this agreement and therefore her payments would not be deductible as a rent expense.

There are no exact tests that need to be met for this determination, but rather an overall view of the circumstances.  Some of the wording that may be included in a conditional contract would refer to a future purchase or an extremely high lease payment in comparison to the fair rental value.

Susan has decided that she needs to counter offer this contract and only wants a lease, with no options, so that she can deduct the rent payments to reduce her tax liability.

If you are not sure what type of lease you are offered, contact us at or 407-988-5647.

Categories: Tax Information

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