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The term "sale and lease back" explains a scenario in which an individual, generally a corporation, owning company residential or commercial property, either genuine or individual, sells their residential or commercial property with the understanding that the purchaser of the residential or commercial property will right away turn around and rent the residential or commercial property back to the seller. The goal of this kind of deal is to make it possible for the seller to rid himself of a big non-liquid investment without denying himself of the usage (during the regard to the lease) of required or desirable structures or devices, while making the net money proceeds readily available for other financial investments without turning to increased financial obligation. A sale-leaseback transaction has the additional benefit of increasing the taxpayers readily available tax deductions, due to the fact that the leasings paid are generally set at 100 percent of the value of the residential or commercial property plus interest over the term of the payments, which results in an acceptable deduction for the value of land as well as structures over a duration which might be much shorter than the life of the residential or commercial property and in particular cases, a deduction of an ordinary loss on the sale of the residential or commercial property.

What is a tax-deferred exchange?

A tax-deferred exchange allows a Financier to offer his existing residential or commercial property (given up residential or commercial property) and purchase more lucrative and/or efficient residential or commercial property (like-kind replacement residential or commercial property) while postponing Federal, and for the most part state, capital gain and devaluation regain earnings tax liabilities. This transaction is most typically described as a 1031 exchange however is also known as a "postponed exchange", "tax-deferred exchange", "starker exchange", and/or a "like-kind exchange". Technically speaking, it is a tax-deferred, like-kind exchange pursuant to Section 1031 of the Internal Revenue Code and Section 1.1031 of the Department of the Treasury Regulations.

Utilizing a tax-deferred exchange, Investors may delay all of their Federal, and in many cases state, capital gain and depreciation recapture income tax liability on the sale of financial investment residential or commercial property so long as certain requirements are satisfied. Typically, the Investor needs to (1) establish a legal plan with an entity referred to as a "Qualified Intermediary" to help with the exchange and designate into the sale and purchase contracts for the residential or commercial properties included in the exchange