I have been offered a large sum of money to move out of my rent-controlled apartment (I pay an obscenely low rent) At first the Landlords said they were going to "gift" me the money - but now that we are ready to sign an agreement they say want to right off the payment as an expense to the property and list it on their taxes - but will not report me as a recipient of the money nor 1099 me.

What I want to know - does this mean that if this payment is NOT a gift and I deposit it into my bank account, then I must report it as income? AND I may have to pay capital gains taxes on this money?

ADVICE PLEASE?!

Disclaimer: I am not an accountant...

...but I used to live in a rent-stabilized apartment (in NYC). A new landlord bought the building and decided he wanted to tear it down so everyone had to move out. Long story short; after 13 months of negotiations, he paid me a pretty hefty sum (and relocated me to another nicer apartment in a different building he owned). I didn't get a 1099 from the realty company either, but I did have an accountant do my taxes that year. (I usually do my own taxes.) I didn't want to claim the money as income because my rent went up substantially and the money he paid me was the difference between the rent stabilized rate and the new apartment's unstabilized rate multiplied by six years (the average length of time people in NYC stay in their apartment, according to some NYC law) so I really needed that money to pay my new, higher rent (which I wouldn't have been able to afford without the landlord's subsidy). The accountant said that I didn't have to claim it, but that if I were to be audited I would probably be in a lot of trouble (maybe even jail). Now, she could have been trying to scare me, but the accountant really had nothing to gain by me claiming/not claiming it so I figured she was telling the truth. I ended up claiming it as income and it sucked because in the end I paid about 1/3 of it to the state and federal governments.

I would try to ask an accountant, or ask the landlord to throw in extra to cover the taxes because I think you're going to have to claim it. I think capital gains would be on investments/property you own, so you wouldn't do that, but again, I'm not an accountant.

PS. I'm presuming you're in NYC since you said the magic words "rent-controlled". It's laid out very, very clearly what the landlords have to do if they want you to move out. Call 311 and ask for the Tenants Rights organization (can't remember the name) and make sure you are getting what's owed to you. In some cases, you can negotiate to have the landlord move you to a comparable apartment since you are being "displaced." New York law, especially NYC law favors the tenant so make sure you don't do anything without weighing all the options. You have a lot of bargaining power as long as you stay in that apartment, use that to your advantage.

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[Edited 6/1/11 21:49pm]

jone70 said:

Disclaimer: I am not an accountant...

...but I used to live in a rent-stabilized apartment (in NYC). A new landlord bought the building and decided he wanted to tear it down so everyone had to move out. Long story short; after 13 months of negotiations, he paid me a pretty hefty sum (and relocated me to another nicer apartment in a different building he owned). I didn't get a 1099 from the realty company either, but I did have an accountant do my taxes that year. (I usually do my own taxes.) I didn't want to claim the money as income because my rent went up substantially and the money he paid me was the difference between the rent stabilized rate and the new apartment's unstabilized rate multiplied by six years (the average length of time people in NYC stay in their apartment, according to some NYC law) so I really needed that money to pay my new, higher rent (which I wouldn't have been able to afford without the landlord's subsidy). The accountant said that I didn't have to claim it, but that if I were to be audited I would probably be in a lot of trouble (maybe even jail). Now, she could have been trying to scare me, but the accountant really had nothing to gain by me claiming/not claiming it so I figured she was telling the truth. I ended up claiming it as income and it sucked because in the end I paid about 1/3 of it to the state and federal governments.

I would try to ask an accountant, or ask the landlord to throw in extra to cover the taxes because I think you're going to have to claim it. I think capital gains would be on investments/property you own, so you wouldn't do that, but again, I'm not an accountant.

Thank you for replying!

Our situations sound very similar. I posted this because I have not been able to get hold of my accountant - who will probably advise as yours did. In my case - I think they want to either sell or refinance the property next year and my current low low rent rent (which is less than half of what the current market rate is) is bringing the property value down. New laws passed here in LA that really protect the rent control tenants - so they cannot even evict me as a tenant in good standing. At first they said they would "gift" me the money which means I would not have to pay taxes - but now they've 'changed their minds' and want to write the payment off on their taxes as a property/business expense.... but since it is not a gift then I believe I will have to report it as income... which blows.

Ugh - Landlords!