§1055 Redeemable Ground Rents

Summary

Treats a redeemable ground rent like a mortgage. Property that has that kind of ground rent is treated like property with a mortgage. That rule starts the day after the law is passed and applies to taxable years that end after that day. When figuring the tax basis of such property, the rule applies whether the property was bought before or after the law took effect. If a redeemable ground rent was reserved or created on or before the day the law passed in connection with transferring the property, the person who reserved it uses the amount that was counted for federal income tax as the basis. If no amount was counted, the basis is figured as if the rule had not been passed. A redeemable ground rent is a ground rent that meets three things: the lease can be assigned by the tenant without the landlord’s consent and lasts more than 15 years including renewals; the leaseholder has a present or future right under state or local law (not just a private deal) to end the lease and buy the landlord’s entire interest by paying a fixed or determinable amount; and the landlord’s interest mainly acts as security for the rent. Rent under these ground rents is treated as interest (see section 163(c)).