What Are the Tax Implications of a Cell Tower Lease Buyout?

Vertical Consultants has been contacted several times regarding the tax implications of a cell tower lease buyout. One of the most asked questions from a cell tower or roof top landlord is, “What are the tax implications if I accept a buy-out offer?”  The two (2) most common tax issues associated with cell tower lease buyout are as follows:

  1. What is the potential tax treatment of proceeds received by a landowner?
  2. Are proceeds received from a cell tower lease buyout open to placement in a 1031 like-kind exchange transaction?

Capital Gains:  Lease Buy-Outs

Representatives for a cell tower company and/or a lease buyout company looking to buy-out your cell tower lease will tell you what the advantages are of selling your lease. One of the advantages they will promote is that proceeds garnered from a cell tower lease buy-out transaction will be subject to capital gain tax treatment which is subject to a considerably lesser rate that your current monthly rent payments which is commonly treated as ordinary income for taxing purposes.

Vertical Consultants has experts on staff that can assist you in structuring a transaction so that you can optimize the probability that such proceeds will be subject to the most tax advantageous treatment.

We do recommend to all cell tower landlords that they consult their accountant or tax advisor before they enter into any buy-out transaction. Also, please visit the following link to get more information about lease buy-outs and their capital gains treatment (http://www.irs.gov/newsroom/article/0,,id=106799,00.html).

1031 Exchanges:  Lease Buy-Outs

The 1031 Exchange is also known a Like-Kind Exchange and sometimes referred to as a Starker Exchange.
Landowners should be aware that in the sale of an investment property, landowners are able to defer paying capital gains tax until a future date by purchasing a like-kind property within a given time frame. Landowner’s should recognize that, the 1031 Exchange is not   a tax-free exchange as taxes are not able to be avoided; they are simply deferred until a future date. For non-simultaneous exchanges, proceeds from the sale are held in escrow by a qualified intermediary until closing on a new property that meets the requirement under the 1031 Exchange standards.

Vertical Consultants has experts on staff that can assist you in structuring a transaction so that you can avoid making a costly error that could prevent you from taking advantage of this tax deferring filing.  We do recommend to all cell tower landlords that they consult their accountant or tax advisor before they enter into any lease buyout transaction. Also please visit the following link to get more information about lease buyouts and the ability to defer proceeds received (http://www.irs.gov/businesses/small/industries/article/0,,id=98491,00.html).

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