The term "sale and lease back" explains a scenario in which an individual, generally a corporation, owning service residential or commercial property, either real or individual, sells their residential or commercial property with the understanding that the buyer of the residential or commercial property will right away turn around and lease the residential or commercial property back to the seller. The goal of this kind of deal is to enable the seller to rid himself of a large non-liquid financial investment without depriving himself of the use (during the term of the lease) of needed or desirable structures or equipment, while making the net cash profits available for other financial investments without turning to increased debt. A sale-leaseback deal has the additional advantage of increasing the taxpayers available tax deductions, since the rentals paid are normally set at 100 per cent of the worth of the residential or commercial property plus interest over the term of the payments, which leads to a permissible deduction for the value of land in addition to structures over a period which might be much shorter than the life of the residential or commercial property and in certain cases, a deduction of a normal loss on the sale of the residential or commercial property.

What is a tax-deferred exchange?

A tax-deferred exchange allows an Investor to offer his existing residential or commercial property (relinquished residential or commercial property) and purchase more lucrative and/or efficient residential or commercial property (like-kind replacement residential or commercial property) while deferring Federal, and in many cases state, capital gain and devaluation recapture earnings tax liabilities. This transaction is most commonly described as a 1031 exchange however is likewise referred to 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 defer all of their Federal, and most of the times state, capital gain and devaluation regain earnings tax liability on the sale of investment residential or commercial property so long as particular requirements are met. Typically, the Investor should (1) establish a legal arrangement with an entity described as a "Qualified Intermediary" to facilitate the exchange and appoint into the sale and purchase contracts for the residential or commercial properties included in the exchange