Aspects to Consider About Taxes and Real Estate
To lease or not to lease? This is a common question for companies regarding their property. Every company has their reasoning; but for most, leasing the real estate used in their business is a preferred choice as opposed to ownership. Why is that? Leasing has the ability not only to lower the cost of capital, creating greater shareholder wealth but it can also enhance corporate flexibility relative to other financing options.
But, what if the sale of real estate triggers a material tax consequence? There is a range of choices and business leaders must evaluate their objectives. For example, is the objective to maximize cash proceeds or to diversify holdings into assets of equivalent value? To maximize cash proceeds, options range from selling property companies (the stock in a property company, rather than the underlying real estate), to retaining real estate utilizing various mortgage, participating mortgage, or hybrid mortgage options. If the objective is to realize in-kind valuations, then 1031 real estate exchanges or real estate investment trust (REIT) UpREIT operating partnership unit exchanges are two of many options.
Although tax traps are commonplace, with thoughtful planning, business owners can minimize their impact in order to optimize the after-tax valuations of their businesses. Creating a successful business is hard work. Preserving that value entails being attentive to tax considerations among many other tasks. Our Master Funding Solutions program provides customized, innovative financing options to maximize after tax proceeds. If you’d like to learn more, feel free to contact one of our representatives or myself at any time. It’s beneficial to work simultaneously with your tax advisors and a capital source like STORE in determining a path that ensures an optimal solution for your business.