Family Sale/Leaseback Transactions

An arrangement where the parent sells property to a child or to a trust for the benefit of a child and then leases the property back. The parent recognizes gain on the sale of the property (and if the property was depreciable, the parent may have to recognize recapture) and the rental income from the property is shifted to the child or Trust for the benefit of the child. If business related, rent paid is deductable off setting the rental income of the other family member.

A major risk is that the IRS will challenge the deductibility of the rent because they might view it as an unnecessary business expense.

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