The term "sale and lease back" describes a situation in which a person, typically a corporation, owning service residential or commercial property, either real or personal, offers their residential or commercial property with the understanding that the buyer of the residential or commercial property will immediately reverse and lease the residential or commercial property back to the seller. The aim of this type of transaction is to enable the seller to rid himself of a big non-liquid investment without depriving himself of the use (during the term of the lease) of necessary or desirable structures or equipment, while making the net money profits available for other investments without resorting to increased financial obligation. A sale-leaseback transaction has the fringe benefit of increasing the taxpayers offered tax reductions, because the rentals paid are usually set at 100 percent of the value of the residential or commercial property plus interest over the regard to the payments, which results in a permissible deduction for the value of land in addition to structures over a period which might be shorter than the life of the residential or commercial property and in specific cases, a reduction of a regular loss on the sale of the residential or commercial property.

What is a tax-deferred exchange?

A tax-deferred exchange enables a Financier to sell his existing residential or commercial property (given up residential or commercial property) and purchase more successful and/or efficient residential or commercial property (like-kind replacement residential or commercial property) while delaying Federal, and in many cases state, capital gain and devaluation regain earnings tax liabilities. This deal is most frequently referred to as a 1031 exchange but is likewise 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 might delay all of their Federal, and in most cases state, capital gain and devaluation regain earnings tax liability on the sale of investment residential or commercial property so long as particular requirements are satisfied. Typically, the Investor should (1) establish a contractual arrangement with an entity described as a "Qualified Intermediary" to assist in the exchange and appoint into the sale and purchase contracts for the residential or commercial properties consisted of in the exchange