The term "sale and lease back" explains a situation in which a person, typically a corporation, owning organization residential or commercial property, either real or individual, offers their residential or commercial property with the understanding that the purchaser of the residential or commercial property will instantly turn around and rent the residential or commercial property back to the seller. The aim of this kind of transaction is to allow the seller to rid himself of a big non-liquid investment without denying himself of the use (throughout the term of the lease) of necessary or desirable buildings or equipment, while making the net cash earnings readily available for other investments without resorting to increased financial obligation. A sale-leaseback deal has the fringe benefit of increasing the taxpayers offered tax reductions, because the leasings paid are usually set at 100 percent 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 worth of land as well as buildings over a period which may be shorter than the life of the residential or commercial property and in specific cases, a deduction of an ordinary loss on the sale of the residential or commercial property.

What is a tax-deferred exchange?
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A tax-deferred exchange allows a Financier to sell his existing residential or commercial property (given up residential or commercial property) and purchase more successful and/or efficient residential or commercial property (like-kind replacement residential or commercial property) while delaying Federal, and in many cases state, capital gain and devaluation recapture income tax liabilities. This deal is most frequently referred to as a 1031 exchange but is likewise called 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 may delay all of their Federal, and in a lot of cases state, capital gain and devaluation regain earnings tax liability on the sale of investment residential or commercial property so long as specific requirements are fulfilled. Typically, the Investor must (1) develop a legal plan with an entity referred to as a "Qualified Intermediary" to help with the exchange and assign into the sale and purchase agreements for the residential or commercial properties included in the exchange