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The term "sale and lease back" explains a scenario in which an individual, typically a corporation, owning service residential or commercial property, either real or personal, offers their residential or commercial property with the understanding that the purchaser of the residential or commercial property will right away reverse and lease the residential or commercial property back to the seller. The goal of this kind of deal is to allow the seller to rid himself of a large non-liquid investment without depriving himself of the usage (throughout the term of the lease) of essential or preferable buildings or equipment, while making the net money proceeds readily available for other investments without resorting to increased debt. A sale-leaseback transaction has the extra advantage of increasing the taxpayers readily available tax reductions, due to the fact that the leasings paid are generally set at 100 per cent of the worth of the or commercial property plus interest over the term of the payments, which leads to a permissible deduction for the value of land in addition to structures over a period which may be shorter than the life of the residential or commercial property and in certain 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 permits a Financier to offer his existing residential or commercial property (relinquished residential or commercial property) and acquire more profitable and/or productive residential or commercial property (like-kind replacement residential or commercial property) while deferring Federal, and for the most part state, capital gain and depreciation recapture earnings tax liabilities. This transaction is most commonly described as a 1031 exchange but is likewise 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 might postpone all of their Federal, and in most cases state, capital gain and depreciation regain earnings tax liability on the sale of investment residential or commercial property so long as certain requirements are satisfied. Typically, the Investor must (1) establish a legal plan with an entity referred to as a "Qualified Intermediary" to assist in the exchange and assign into the sale and purchase agreements for the residential or commercial properties consisted of in the exchange