Hello. This is a tax accounting question: I'm negotiating a commercial lease buy-out with my landlord for the difference in my rent from what I pay now, to what I must pay at my new office location, which is much higher rent. The settlement proceeds are being used to help me procure the same amenities & the cost of a business use permit that I have at my old location, to be applied to my new office location. I wonder if I need to structure the correct wording of "how" the taxes will be treated within my settlement agreement? I read an article on the importance of this subject. I will explain a lot of my question. Link below.
The amount the landlord pays you will be taxable gain to you and, generally speaking, is likely to be capital gain. Expenses related to negotiating the buyout should be allowable as capital expenditures that offset the capital gain treatment of the buyout. Generally speaking, the landlord is allowed to amortize the payment across the remaining term of the lease (unless the buyout was to sell the property or to tear it down and put up a new building, in which case the payment may have to be capitalized into the basis of the new property).
My answer does not constitute legal advice and may not be relied upon by anyone for any purpose and does not constitute an attorney/client relationship or an offer to form such a relationship. This disclaimer is intended to be fully compliant with the requirements of Treasury Department Circular 230 and the terms thereof are fully incorporated by reference.
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