Lease-to-own matter proves confusing

BY ILYCE GLINK AND SAMUEL J. TAMKIN

Tribune Media Services

Q: I’m located in Alabama, and I own a house. The house is rented to a tenant who intends to buy it once she has improved her credit and can refinance the balance of the $50,000 loan on the home.

I sold the home to her for $70,000 and she gave me a $20,000 down payment. I have given my tenant a 1098, though I was still financing the house. Did I do the right thing?

A: I’m a bit confused by your question. You say you own the home, and yet you also say that your “tenant” purchased the home. If you still hold the title to the home, would it be fair to say that you sold the home on an installment basis and when your buyer pays you in full, you would transfer the title of the home to the buyer?

Or did you just sell the home but feel as if you still own it because your buyer has not paid off the loan on the home?

Here’s another possibility: Did you enter into a lease with a tenant giving the tenant the right to buy the home at some future date, at a certain price and the tenant paid you $20,000 either as a deposit toward the future purchase of the home or as an option fee to buy the home with the $20,000 applied towards the purchase price?

If you actually sold the home either by transferring the title to the buyer or entering into an installment sale for deed for the home, you would no longer be considered the actual owner of the home. In that case, the loan documents signed by the buyer or the installment purchase agreement signed by the buyer would indicate the payments your buyer is making on the home.

These payments may have an interest component as well as a principal repayment. In either case, you can report the interest your buyer pays you by completing an IRS form 1098. This form discloses the amount of interest that you have been paid the prior year

See MATTERS, page C42