For purposes of this question assume that the described transaction is NOT in the ordinary course...

For purposes of this question assume that the described transaction is NOT in the ordinary course of business. If a lessee purchases the leased property from the lessor, improves the property, and then immediately after the improvements are completed re-sells it back to the lessor for a loss, how will such transaction be treated for tax purposes?

	A.	The loss on the sale is deductible in the year of the sale.
	B.	The loss on the sale may be carried forward to offset against related passive gains in future years.
	C.	The "loss" on the "sale" is treated as rent paid by the lessee/purchaaser to the lessor/seller and is reported as rental income to the lessor, and deductible rent expense to the lessee.
	D.	None of the above.

Expert Solution

The Answer to above is B. As per Accounting standard Leases, incase of Sale and Leaseback transaction, if the transaction results in loss or profit then the resulting profit is not to be recognised immediately and amortised over the useful life of the asset and the same is offset against any future Depreciation or Income. Hence it is a deductible loss for future profits as per tax purposes.

ekkarill92 answered 2 years ago

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For purposes of this question assume that the described transaction is NOT in the ordinary course...

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