A sale-leaseback is a real estate transaction (mostly commercial real estate) in which a property owner sells the property and simultaneously leases it back from the purchaser. The purpose of a sale-leaseback is typically related to financing, accounting and/or for tax reasons.
An Internal Revenue Code 1031 tax exchange provides an exception and allows you to postpone paying tax on the gain if you reinvest the proceeds in similar property as part of a qualifying like-kind exchange.
Gain deferred in a like-kind exchange under IRC Section 1031 is tax-deferred, but it is not tax-free.
There are several types of exchanges structures for commercial or investment property owners to consider based on their unique situation including simultaneous swaps, deferred exchanges, reverse exchanges and construction exchanges.
Sale-leasebacks allow companies and businesses to unlock their real estate assets’ equity, raise capital to reduce debt or invest in their core business, and strengthen their financial position. Companies and businesses also utilize 1031 exchanges to trigger gains to utilize expiring net operating losses. Due to the complexities of sales-leasebacks and 1031 exchanges and the potential tax implications, it is recommended that companies hire an experienced law firm to help them evaluate the alternatives, structure the transaction and negotiate the terms of the agreement.
The real estate attorneys of KALIS, KLEIMAN & WOLFE’s have extensive experiences handling sales/leasebacks and structuring Section 1031 exchanges for their clients. They counsel buyers, sellers, businesses and residents throughout Florida on sales/leasebacks and the sale of real estate using Section 1031 exchanges.