§1055 Redeemable Ground Rents

Summary

Treats a redeemable ground rent like a mortgage for tax rules. Land that has this kind of ground rent on it is treated the same as land with a mortgage debt. The rule starts the day after the law is passed and applies to taxable years that end after that day. It applies when figuring the tax basis of the property whether the property was bought before or after the rule took effect. If the ground rent was created on or before that date when the right to hold the land was transferred, the creator’s basis in the ground rent after that date is the amount they reported as the sale consideration for tax purposes; if they reported no amount, the basis is figured as if the rule had never been passed. A “redeemable ground rent” means a lease that meets three points: the tenant can assign the lease without the landlord’s OK and it lasts more than 15 years counting renewals; the tenant has a present or future right under state or local law (not a private deal) to end the lease and buy the landlord’s whole interest by paying a set or determinable amount; and the landlord’s interest mainly serves as security to protect the rent. Rent paid under these ground rents is treated as interest for tax purposes.