So, I started renting my former primary residence in 01/2012 after having it on the market for a year (moved to take a job elsewhere). In 04/2012 I purchased a home in my current city. I am sure you can understand why I might want to sell my former home.

Anyway, I currently have someone interested in a rent-to-own agreement on my rental property. I have not made any decisions concerning lease-option vs. lease-purchase; I need to speak to a lawyer. However, I would appreciate any feedback on the potential taxes associated with such a sale.

I purchased the home for $126,500 in 06/2006. I put about $20k in repairs into it while I was living there. The rent-to-own option I advertised online (which I expected no one to respond to) was $5k down, $1k per month rent, with option to buy within 3 years for $112,500. I will likely give them 10% of their rent toward purchase price.

I am currently renting the house for $900 per month, which is only $84 more than my mortgage...so at the end of the year, with upkeep and depreciation figured, I am at a $3.7k loss. I just received my real-estate tax statement that quotes the market value of the property at $144.5k ($28.9k for the land).

So my questions are:
1. What sort of taxes am I going to have to pay on this sale if we assume an agreement to begin in 01/2014, and the buyer purchases at the end of the three-year term (12/2017)?

2. What is the $5k down? Do I pay taxes on it immediately, or hold it as a deposit?

3. Is this a good idea, or should I keep renting until a conventional buyer comes along?

Like I said, I will make arrangement to consult a real-estate lawyer soon, but any info that I can get beforehand would be great.

Thanks in advance!