Option to Purchase A gas Staion

Forum|Forum|3 years ago
April 18, 2023
2 replies
16 views

How does one account for a transaction where the "buyer" makes a down payment or deposit to the "seller" and retainsan the option to purchase the property and business within a spefied seriod while making " monthly option payments"

Option 1 record as a Purchase and put the assets on the books and the unpaid portion as a "Sellet Fiananced..

if option is abandoned..???

Option 2 treat it as a rental UNTIL the purchase is consummated, crediting as income the payments so far deducted as as rent? or as a reduction of purchase price....??

Never had to face this before ..I searched teh AICPA fo rguuidance and was not suceesful

Any help will be appreciated may be there is a very somple direct answer???

ProSeries Professional

This topic has been closed for replies.

Best answer by BobKamman

If "the down payment is refundable," it's not an option. An option would be part of the proceeds if exercised, or income recognized when the option expired if not exercised.

Who is operating the business right now? The optionor or the optionee?

T

TaxGuyBill

Level 15

I think I would want to see more details. For example:

Is the price set now, or will the 'final' selling price be determined when the 'option' is exercised?
Are the monthly 'option payments' applied against the selling price?
Is the down payment or deposit refundable? Is it applied against the selling price?
Who is paying for insurance? Real estate taxes? Maintenance?
Maybe more details in the contract.

Without more information, it is difficult to make any decision for how to treat it for tax purposes.

M

mike9Author

Level 5

Hi Bill

So kind of you to respond so fast on the last sday of our favseason:):)

Price is set .

A portion fo teh monthly apemetns are aopplied agaiinst purchase price

Down payment is refundable and it is a credit to selling rpice

"Optionee" is paying for all taxes and insruance

BobKammanAnswer

Level 15

If "the down payment is refundable," it's not an option. An option would be part of the proceeds if exercised, or income recognized when the option expired if not exercised.

Who is operating the business right now? The optionor or the optionee?

T

taxes96786

Level 8

If you have a copy of the contract it is reported as an installment sale.

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