Iowa Real Estate & Land Use Blog
The sale-leaseback scenario
Aug. 7, 2011 – Benjamin D. Bruner, Iowa Real Estate & Land Use Blog
The “sale-leaseback” concept is not a new one, but it is one that is being utilized more and more in today’s economic climate as the financial and tax benefits can be numerous for both parties. In its simplest form, a sale-leaseback is a transaction in which the owner of property sells the property and simultaneously leases it back from the purchaser. The purposes of a sale-leaseback are typically related to financing, accounting and/or tax.
The benefits of a sale-leaseback can be quite substantial for both the seller/lessee and the buyer/lessor. The primary benefits to (and thus motivation of) the seller/lessee in a normal sale-leaseback are typically as follows:
Obviously, in order to induce a buyer/lessor to enter into such a transaction there must be substantial benefit to them as well. Accordingly, the primary benefits to (and thus motivation of) the buyer/lessor in a normal sale-leaseback are typically as follows:
It is apparent that a sale-leaseback transaction is one that can provide very real benefits to each party involved, but such an agreement needs to be properly structured in order to avoid certain risks associated with the IRS’s scrutiny of the transaction. If not properly structured and orchestrated, the IRS may attempt to disallow deductions for such things as depreciation, rental payments, interest and investment tax credit by the parties to a putative sale-leaseback arrangement, on the grounds that the arrangement actually constituted a financing device or exchange of like-kind property. Each situation involving a sale-leaseback arrangement is unique and should be treated as such.
Tags: benefits of sale-leaseback, IRS scrutiny of sale-leaseback arrangements, sale-leaseback arrangements