Disclaimer: Airwave Advisors LLC does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
What Am I Going To Pay In Taxes?
The answer is it all depends on how you structure your cell tower lease buyout. Remember that it is important that you pick your preferred structure BEFORE you start going down the sales process with any buyer. There are two main structures used in cell tower lease buyout transactions.
(i) Granting the buyer an Easement, or (ii) granting the buyer a Lease Assignment.
An Easement transaction in a term length of 99 years or perpetuity, may qualify your cell tower lease buyout transaction for capital gains tax treatment. Please remember to always check with your tax advisor prior to taking any action.
A Lease Assignment transaction may be taxed as ordinary income, or pre-paid rent. Again, check with your tax advisor to see which deal structure makes the most sense for you.
How Do I Avoid Paying Taxes?
Uncle Sam will always want his share, however, you may be able to differ taxes with a 1031 exchange. Under IRC Section 031, a properly structured 1031 exchange allows an investor to sell a property, to reinvest the proceeds in a new property and to defer all capital gain taxes. The seller needs to identify an investment property within 45 days of the exchange period and the exchange period has a maximum time limit of 180 days. If you would like to learn more about 1031 exchanging your cell tower lease, we work with 1031 exchange experts to help you correctly structure your transaction.
Can I Split The Sales Proceeds Into Multiple Tax Years?
Yes! A common tax strategy utilized by sellers, especially towards the end of the year, is to split the lump-sum cell tower lease buyout payment into two payments. One payment paid at closing in the current tax year and another payment paid on January 1st of the next tax year.
Another option available to sellers is to structure the payout to be paid over many years, however proceed with caution. By accepting a multi-year payout from any buyer you are assuming that buyer will be conducting business and will be able to fulfill their obligations to pay you in the years to come. If the buyer goes bankrupt in say year two of your ten year buyout, then how are you going to receive the rest of the money due to you?
There Are Many Options, What Should I Do?
Call us today to discuss your cell tower lease buyout transaction. We will tailor your transaction to meet your needs – not the needs of the buyer. Our clients always come first and we listen to you.
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About Nick G. Foster
Since founding Airwave Advisors® in 2014, Mr. Foster has added value to over 400 clients ranging from the State of Nevada, City of Beverly Hills, to Habitat For Humanity. Mr. Foster focuses on cell tower lease renewals, buyouts, new lease negotiation, and cell site lease management. Prior to starting Airwave Advisors® Mr. Foster founded and led the Cell Site Services Group within nationwide commercial real estate services leader Cassidy Turley (now known as Cushman & Wakefield).