I think this may be great deal and one of the features of this deal that you may have overlooked is the potential appreciation of the building!
Anyways, lets analyze this deal w/o appreciation potential of the property. Firstly, from cash flow standpoint it appears to be cash flow neutral except for 1/3 of the HOA which I believe is very minimal. Once you compute for depreciation there is a strong possibility that this property would generate a net rental loss.
Hence, the rental property appears to be generating a slight positive at best or a zero at worst cash flow after tax impact!
Now, you state that the sub-leasing income generated by the lessee is additional income to you! I don't believe so, this sub-lease income is taxable to the lessee and not you. Therefore, you would not be subjected to a higher tax rate from this particular transaction. All in all, this appears to be an excellent deal for you in my opinion from the tax point of view especially once you take into account the depreciation factor!
Last edited by TaxGuru : 05-07-2007 at 07:04 PM.