My client gave me their financials for tax prep and explained that they purchased a building during the year. They recorded the purchase at $377,000 but the closing document has a purchase price of $400,000. I reviewed the lease to find they had an option to buy the building at $400k with 50% of their rent paid credited towards the purchase price. How do I reconcile on their books the credit towards the purchase price so the fixed asset listing is correct at $400k?
The building was purchased in January and no rent had been paid in 2019 yet. All rent credited to the purchase was paid in 2018 and taken as a deduction of rent expense.