Sale-Leaseback vs. Refinancing

Compares a sale-leaseback against a mortgage refinancing side by side, calculating the implied financing rate, the tax on the embedded gain, and net after-tax proceeds from each route. Inputs are the sale price, annual leaseback rent, cost basis, depreciable basis and years held, the corporate tax rate, and the refinance LTV and mortgage rate.

Interactive Tool

Sale-leaseback

Sale price (market value)

Annual leaseback rent

Original cost basis

Improvement (depreciable) basis

Recovery period

Years held before sale

Corporate tax rate

Refinancing alternative

Refinance LTV

Mortgage rate

Implied rate (rent ÷ price)

5.0%

≈ forgone owner yield

Tax on embedded gain

$1,373,077

21% × $6,538,462

Net after-tax proceeds

$28,626,923

sale − gain tax

Gain on sale

Accumulated depreciation (3 × $512,821)

$1,538,462

Adjusted basis (cost − accum. dep)

$23,461,538

Taxable gain (sale − adj. basis)

$6,538,462

Sale-leaseback vs. refinance

Dimension	Sale-Leaseback	Refinance
Cash raised	$30,000,000	$19,500,000
Implied / stated rate	5.0%	6.50%
Residual value	Surrendered	Retained
Depreciation shield	Lost	Retained
Tax effect	Gain taxed now	No gain

The sale-leaseback raises $10,500,000 more cash at a lower visible rate, but surrenders the residual and depreciation shield and triggers $1,373,077 of tax now.

Learn the concept

This calculator comes from the free Real Estate Finance course, where the concept is taught with readings, worked examples, and practice questions.

Open Real Estate Finance

Built by Devon Coombs, CPA, MBA, Teaching Professor of Finance at Santa Clara University.