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How can a lessee be deemed the “original user” of a property?

One of my buildings has been vacant for four years. How can I fulfill the requirement of “original user” as a lessee?

  • Valerie Grunduski
    September 23, 2019

    The second round of proposed regulations allow for a lease of property to satisfy the original use test. They also allow for related party leases so long as the lease meets the various requirements, including that the lease be structured as arm's length and includes not prepayments. Noteworthy is that using a lease structure will reduce the amount of gain upon exit that will benefit from the 10-plus year step-up in basis benefit.

  • Maria De Los Angeles Rivera
    September 14, 2019

    There are special rules for leases of property, especially if it is between related parties. Usually, the original use requirement will not apply to leases. Your case needs special attention, specially due to the requirement of property acquired after Dec. 31, 2017.

  • Erik Kodesch
    September 11, 2019

    The second round of proposed regulations exempted leased property from the original use requirement. For your situation, however, you will need to comply with the related party lease rules.

  • Matthew Rappaport
    September 10, 2019

    If you own the property through a non-QOF entity for four years, you can't be the original user. If you construct improvements, you can be the original user of the improvements through a master lease structure.

  • Brad Cohen
    September 09, 2019

    Not necessary.

  • Jonathan McGuire
    September 09, 2019

    For property that has been vacant for at least five years, original use can commence on the date after that five-yea