The term "sale and lease back" explains a scenario in which an individual, usually a corporation, owning organization residential or commercial property, either genuine or personal, sells 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 objective of this type of deal is to enable the seller to rid himself of a big non-liquid investment without depriving himself of the usage (during the term of the lease) of essential or desirable structures or devices, while making the net cash earnings offered for other financial investments without resorting to increased financial obligation. A sale-leaseback deal has the extra benefit of increasing the taxpayers offered tax deductions, since the leasings paid are normally set at 100 percent of the value of the residential or commercial property plus interest over the term of the payments, which leads to an allowable reduction for the worth of land along with structures over a period which might be much shorter than the life of the residential or commercial property and in particular 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 allows an Investor to sell his existing residential or commercial property (relinquished residential or commercial property) and acquire more lucrative and/or efficient residential or commercial property (like-kind replacement residential or commercial property) while delaying Federal, and in most cases state, capital gain and depreciation recapture income tax liabilities. This transaction is most frequently described as a 1031 exchange however is also referred to as a "delayed 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 defer all of their Federal, and most of the times state, capital gain and devaluation recapture income tax liability on the sale of investment residential or commercial property so long as certain requirements are met. Typically, the Investor needs to (1) develop a contractual arrangement with an entity described as a "Qualified Intermediary" to facilitate the exchange and appoint into the sale and purchase agreements for the residential or commercial properties included in the exchange