A lessor is paid $45,000 by its commercial tenant as a lease cancellation fee.The tenant wanted to get out of its lease so it could move to a different building.The lessor had held the lease for three years before it was canceled.The lessor had a zero tax basis for the lease.The lessor has received:

Question

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The $45,000 payment is considered ordinary income as it is a lease cancellation fee and the lessor had no tax basis for the lease.

A Lessor Is Paid $45,000 by Its Commercial Tenant as a Lease