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Can I do an exchange on a lease
with more than 30 years remaining...?
Most real estate
professionals are familiar with
1031 exchanges involving real
estate. Common examples would
include selling land and buying
a rental condo, selling a commercial
property and buying a vacation
home [see:
1031 vacation home update: May
2007], etc., etc.
But, did you
know that a lease with more than
30 years left on it can qualify,
too? Leases of 30+ years are considered "real property" for tax purposes.
This would include the lease term, plus any optional renewal periods. So for
example, you could exchange a lease of just 10 years with four renewals of
five years each, if you held that
lease for business or investment.
Let's say you
own a 50-year lease on a property.
Someone wants to buy the lease from you. This might happen because the lease
payment is so low, the lease is now worth more than the rent being paid. Well,
you can sell this lease and exchange the proceeds into a piece of land, a rental,
a vacation home, another 30+ year lease -- anything that would otherwise
qualify for a 1031 exchange!
We see these situations arise on cell phone towers and billboard
leases. There are also other situations where someone's building is located
on leased property. For instance, there is a resort town in New Jersey where
most of the homes are built on land encumbered by a 100 year lease -- these
homes will qualify for a 1031 exchange.
If you'd like to learn more about this, give any one
of our Experts a call.
--The
Experts |
