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

Quizplus · Accepted Answer

The $45,000 lease cancellation fee is considered ordinary income for the lessor, as they had a zero tax basis for the lease. As such, they will need to pay taxes on this amount as if it were regular income. Therefore, choice A is the correct answer.

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