Legal Question in Real Estate Law in Maryland

Re: What type Document do we need to verify ''Rent to Buy'' arrangement?

The sale compared to the basis of the property upon conveyance will determine the gain on the sale. Rental income that is otherwise not set forth for assumption of the property is declarable to the recipient. Contact an attorney should you require assistance with the property contract. Consult a tax preparer or attorney for assistance with tax filing.

Re: What type Document do we need to verify ''Rent to Buy'' arrangement?

First of all you should have a written contract for the purchase, setting forth all terms. The contract should specify that the tenant/buyer, in order to get his rent payments to apply to the purchase price, must exercise his option by a certain date. The closing should take place within a fixed period of time after the tenant exercises his option. Regarding tax treatment, as you know, your rent payments are Schedule E income to you, although you can deduct taxes, expenses and depreciation from this income. I suggest you consult your tax preparer as to how to report the payments that actually get applied to the purchase price. They will probably be treated as part of the equation to determine your capital gain from the sale of the property.