Ground Rent Tax Shelter
Can someone shed some light on a deal they have done where they acquired a property with a ground lease in place? I'm reading Linneman's texbook and came across the Ground Leases as a Source of Finance chapter. I know that the ground rent payment is tax deductible but can't seem to find much more information online relating to commercial deals, only residential. Is there a depreciation schedule for the ground lease structure or is it just dollar for dollar? Thanks in advance.
For commercial real estate, when you pay ground rent it is an expense against your income. Ground rent is deducted like a normal business expense.
Building Gross Revenue: $5,000,000 Operating Expenses: $3,000,000 Ground Rent: $250,000 Interest: $500,000 Net Income: $1,250,000
Right, it can be considered a "source" of financing to the extent you don't take title to the land, and thus it becomes an operating pre-tax expense. If the lease is capitalized (lease to own), then you would take a depreciation expense to it and not operating expense, but ground leases in my experience are mostly not capitalized as there's no intent to sell upon its termination
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