Did you know that not all lease related income has to be ordinary? One would always expect that a payment from a tenant to a landlord would be treated as ordinary income under the Internal Revenue Code. Until 1997, that would have been the IRS’ expectation as well.
In 1997, Congress added a very short section to the Code – 1234A. In plain English, this section states that a gain (or loss) attributable to the “cancellation, lapse, expiration, or other termination” of a lease for real property will “be treated as a gain or loss from the sale of a capital asset.”