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Title 26 — Internal Revenue CodeRelease 119-73

§1055 Redeemable Ground Rents

Title 26 › Subtitle Subtitle A— Income Taxes › Chapter 1— NORMAL TAXES AND SURTAXES › Subchapter O— Gain or Loss on Disposition of Property › Part IV— SPECIAL RULES › § 1055

Last updated Apr 6, 2026|Official source

Summary

A redeemable ground rent is treated like a mortgage for income tax purposes. If you hold real estate that is subject to one, the tax law treats the property as if it were subject to a mortgage. To count as a redeemable ground rent, the lease of the land must run more than 15 years (counting renewal options), the leaseholder must be free to transfer it without the landlord's consent, the leaseholder must have a right under state or local law to buy out the landlord's interest for a set or determinable price, and the landlord's interest must mainly be security for the rent payments. The rule applies whether you acquired the property before or after the section was enacted, and special basis rules cover ground rents created on or before that date. The rent payments themselves can be treated as interest under section 163(c).

Full Legal Text

Title 26, §1055

Internal Revenue Code — Source: USLM XML via OLRC

(a)For purposes of this subtitle—
(1)a redeemable ground rent shall be treated as being in the nature of a mortgage, and
(2)real property held subject to liabilities under a redeemable ground rent shall be treated as held subject to liabilities under a mortgage.
(b)(1)Subsection (a) shall take effect on the day after the date of the enactment of this section and shall apply with respect to taxable years ending after such date of enactment.
(2)In determining the basis of real property held subject to liabilities under a redeemable ground rent, subsection (a) shall apply whether such real property was acquired before or after the enactment of this section.
(3)In the case of a redeemable ground rent reserved or created on or before the date of the enactment of this section in connection with a transfer of the right to hold real property subject to liabilities under such ground rent, the basis of such ground rent after such date in the hands of the person who reserved or created the ground rent shall be the amount taken into account in respect of such ground rent for Federal income tax purposes as consideration for the disposition of such real property. If no such amount was taken into account, such basis shall be determined as if this section had not been enacted.
(c)For purposes of this subtitle, the term “redeemable ground rent” means only a ground rent with respect to which—
(1)there is a lease of land which is assignable by the lessee without the consent of the lessor and which (together with periods for which the lease may be renewed at the option of the lessee) is for a term in excess of 15 years,
(2)the leaseholder has a present or future right to terminate, and to acquire the entire interest of the lessor in the land, by payment of a determined or determinable amount, which right exists by virtue of State or local law and not because of any private agreement or privately created condition, and
(3)the lessor’s interest in the land is primarily a security interest to protect the rental payments to which the lessor is entitled under the lease.
(d)For treatment of rentals under redeemable ground rents as interest, see section 163(c).

Legislative History

Notes & Related Subsidiaries

Editorial Notes

References in Text

Date of the enactment of this section, referred to in subsec. (b)(1), (3), means Apr. 10, 1963, the date of approval of Pub. L. 88–9.

Prior Provisions

A prior section 1055 was renumbered section 1063 of this title.

Statutory Notes and Related Subsidiaries

Effective Date

Pub. L. 88–9, § 2, Apr. 10, 1963, 77 Stat. 8, provided that: “The

Amendments

made by subsection (a) of the first section of this Act [amending section 163 of this title] shall take effect as of January 1, 1962, and shall apply with respect to taxable years ending on or after such date. The

Amendments

made by subsection (b) of the first section of this Act [enacting this section] shall take effect on the day after the date of the enactment of this Act [Apr. 10, 1963] and shall apply with respect to taxable years ending after such date of enactment.”

Reference

Citations & Metadata

Citation

26 U.S.C. § 1055

Title 26 — Internal Revenue Code

Last Updated

Apr 6, 2026

Release point: 119-73