Ezra Dyckman and Charles S. Nelson
There are a number of approaches for owners of rental real estate to monetize low-basis real estate while maintaining tax deferral. One method that can achieve these objectives is a long-term lease with a large initial payment of rent.
Section 467 of the Internal Revenue Code generally governs the income tax treatment of leases with prepaid rent. Prior to the enactment of Section 467, if a tenant made a large initial payment of rent, the tenant was required to amortize the payment over the term of the lease, but the landlord was required to include the entire payment in income for the first year. To avoid this unfavorable result, Congress enacted Section 467.
