[Code of Federal Regulations]
[Title 26, Volume 11]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.1055-1]

[Page 174]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.1055-1  General rule with respect to redeemable ground rents.

    (a) Character of a redeemable ground rent. For purposes of subtitle 
A of the Code (1) a redeemable ground rent (as defined in section 
1055(c) and paragraph (b) of this section) shall be treated as being in 
the nature of a mortgage, and (2) real property held subject to 
liabilities under such a redeemable ground rent shall be treated as held 
subject to liabilities under a mortgage. Thus, under section 1055(a) and 
this paragraph, the transfer of property subject to a redeemable ground 
rent has the same effect as the transfer of property subject to a 
mortgage, the acquisition of property subject to a redeemable ground 
rent is to be treated the same as the acquisition of property subject to 
a mortgage, and the holding of property subject to a redeemable ground 
rent is to be treated in the same manner as the holding of property 
subject to a mortgage. See section 163(c) for the treatment of any 
annual or periodic rental payment under a redeemable ground rent as 
interest.
    (b) Definition of redeemable ground rent. For purposes of subtitle A 
of the Code, the term redeemable ground rent means only a ground rent 
with respect to which all the following conditions are met:
    (1) There is a lease of land which is assignable by the lessee 
without the consent of the lessor.
    (2) The term of the lease is for a period in excess of 15 years, 
taking into account all periods for which the lease may be renewed at 
the option of the lessee.
    (3) The lessee has a present or future right to terminate the lease 
and to acquire the lessor's interest in the land (i.e., to redeem the 
ground rent) by the payment of a determined or determinable amount, 
which amount is referred to in Sec. Sec. 1.1055-2, 1.1055-3, and 
1.1055-4 as a redemption price. Such right must exist by virtue of State 
or local law. If the lessee's right to terminate the lease and to 
acquire the lessor's interest is not granted by State or local law but 
exists solely by virtue of a private agreement or privately created 
condition, the ground rent is not a redeemable ground rent.
    (4) The lessor's interest in the land subject to the lease is 
primarily a security interest to protect the payment to him of the 
annual or periodic rental payments due under the lease.
    (c) Effective date. In general, the provisions of section 1055 and 
paragraph (a) of this section take effect on April 11, 1963, and apply 
with respect to taxable years ending on or after such date. See Sec. 
1.1055-3 for rules for determining the basis of real property acquired 
subject to liabilities under a redeemable ground rent regardless of when 
such property was acquired. See also Sec. 1.1055-4 for rules for 
determining the basis of a redeemable ground rent in the hands of a 
holder who reserved or created such ground rent in connection with a 
transfer, occurring before April 11, 1963, of the right to hold real 
property subject to liabilities under such ground rent.

[T.D. 6821, 30 FR 6216, May 4, 1965]