Is tax deduction on depreciation allowed to lessor under sales type lease?
The above answer is completely correct. Until the lessee becomes the legal owner of the property they cannot take a depreciation deduction although the lease payments would be deductible if this was a business lease. If this is a “lease-to-own” proposition I would suspect that since the lease payments were deductible the basis in the property would be considered $0 since the cost was already written off during the lease period. Since the basis would be $0, no depreciation would be allowable even once you became the legal owner. Rob or Judy or one of the other experts here may correct me on that aspect though my gut tells me that it’s correct.
