The term "sale and lease back" describes a circumstance in which a person, usually a corporation, owning service residential or commercial property, either real or individual, offers their residential or commercial property with the understanding that the buyer of the residential or commercial property will immediately turn around 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 large non-liquid investment without denying himself of the usage (throughout the term of the lease) of necessary or desirable structures or equipment, while making the net cash proceeds offered for other investments without turning to increased debt. A sale-leaseback deal has the additional advantage of increasing the taxpayers readily available tax reductions, since the leasings paid are generally set at 100 percent of the worth of the residential or commercial property plus interest over the regard to the payments, which leads to a permissible reduction for the value of land as well as buildings over a duration which may 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 permits a Financier 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 most of the times state, capital gain and devaluation recapture income tax liabilities. This deal is most typically referred to as a 1031 exchange however is also called 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 may delay all of their Federal, and for the most part state, capital gain and depreciation regain earnings tax liability on the sale of investment residential or commercial property so long as certain requirements are fulfilled. Typically, the Investor needs to (1) develop a contractual plan 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