Sales leaseback
Buyers
and sellers can derive tax advantages through an arrangement in
which
property is sold with provisions
for the seller to continue occupancy as a lessee. This form of
transaction is called a sale-leaseback, purchase lease, sale lease,
lease purchase, or leaseback.
With a sale leaseback, seller/lessees gain the advantage of
getting property exactly suited top their needs without tying up
working capital on fixed assets. Often more capital can be raised
than by borrowing. In addition, because leases are not considered
long term liabilities, rent is totally tax deductible. Frequently,
writing off total lease payments is better than depreciation, for
the land portion of the property cannot be depreciated. If a
property has a significant mortgage, a sale-leaseback would remove
debt from a balance sheet, which would give a positive impression on
lenders and purchasers of the corporate stock.
The lease payments will pay off the original investment, and the
lessor still will have title to the property. The investment will
not be paid off prematurely, so the investor will not have to go out
seeking another investment to replace the one prematurely paid off.
In addition, the lease terms often give the lessor a claim against
other assets of the lease in the event of a default, which is better
security protection than a trust deed affords. Finally, a
transaction usually involves a large amount of money. It costs the
investor no more to service one large loan than it costs to service
small mortgage.
Universal Exclusion fir Gain on Sale of Principal Residence.
A seller of any age who has owned and used the home as a
principal residence for at least two years of the five years before
the sale can be can exclude from income up to $250,000 of gain, for
married couple it is $500,000. The exclusion can be used only once
every two
years.
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