Helping our clients save money on their taxes is part of our job at Landmark Dividend. A 1031 exchange is one of the ways we achieve that goal. Instead of just selling us your lease (referred to as a lease assignment), which will likely result in a capital gains tax bill for you, you can defer this tax by granting us an easement around your cell tower site. But wait a minute. If a 1031 exchange is about selling one property and buying another, how can you participate by selling your cell tower lease? The answer is by placing an easement under the cell tower site (which can simply mirror the existing easement, if there is one), it turns your cell tower lease sale into a real property sale, generally making it eligible for a 1031 exchange. Having an easement generally does not affect your ownership of the land, including your ability to sell it.
Section 1031 of the Internal Revenue Code allows for the deferral of capital gains on the sale of a property held for productive use in trade or business or for investment. It can’t be used for residences or for second homes unless the property is used only for rental to third parties. To achieve full tax deferral, one must reinvest all of their proceeds in a “like-kind” replacement property and have the same or greater amount of debt on the replacement property.
Any property held for productive use of trade or business or for investment can be exchanged for any other property held for productive use in trade or business or for investment – that’s the definition of “like-kind”.
The equity in your property is preserved under a 1031 exchange, but there are other benefits. Having more equity means increased spending power, allowing you to buy a more expensive property than if you had to pay capital gains tax on the sale of your property. 1031 Exchange also allows you to diversify your investments without an immediate tax consequence.
When you sell the “relinquished” property and purchase the “replacement” property at a later date, it’s called a delayed exchange. The “exchange period” time limit to buy a “like kind” property is 180 calendar days or your next tax filing date, whichever is earlier.
You also have to identify the replacement property or properties within 45 days of selling your relinquished property. This 45-day timespan is called the “identification period” and it is part of the 180 day exchange period. You may identify as many properties as necessary to total the fair value of the property you are exchanging, or up to three properties of like value.
1031 Exchange also allows you to diversify your investments without an immediate tax consequence.
The 1031 exchange rule also governs the proceeds of the sale. A qualified intermediary (QI) must handle the proceeds from the sale. You or your agents or anyone else cannot receive or manage proceeds or they will become taxable. Any proceeds retained are taxable. Keep in mind also that all proceeds from the original sale of the relinquished property has to be reinvested in the “like kind” property.
A second key rule in a 1031 exchange requires that the replacement property must have the same or higher level of debt than the relinquished property sold. If it falls short, the buyer will either have to put more money into the replacement property or pay taxes on the shortfall.
If you are uncertain about selling your lease, we understand. That’s why we welcome you to call us so we can discuss every aspect of a cell tower lease buyout. There is never a cost or obligation to speak with us. We freely share our vast knowledge of the wireless industry and cell tower lease sales and also what we know about rents and developments in your individual market.
Landmark Dividend is the nation’s largest cell tower lease buyout company. We have helped thousands of property owners achieve greater financial flexibility and security. If you want to sell your cell tower lease, we can help you, too! Give us a call today at 1-800-843-2024 or click here to submit your information and we’ll contact you. We’re here to provide you with straightforward information to help you make the best possible financial decision regarding your cell tower lease.
IMPORTANT TAX NOTICE: Landmark does not provide advice on any income tax, capital gains tax or other tax requirements or issues related to any transaction in which Landmark is a party or participant in any fashion. Use of any information obtained from Landmark or its affiliates or agents or referral by Landmark or its affiliates or agents is for general information only and does not represent tax advice either express or implied. You are encouraged to seek professional tax advice for tax questions and assistance. The information above is provided as a general introduction to the 1031 exchange process. Prospective sellers and buyers of real estate should always consult their attorney and tax advisor prior to entering into a 1031 transaction.