Reviewed by Craig Hoebing, Capital Market Funds, LLC - CBK-2007014 - Commercial Mortgage Banker · Updated October 2026
A sale-leaseback is a sale of a building and a lease of that same building back to the seller, who stays in occupancy as the tenant. IRS written determination 200011004, opened October 30, 2026, says whether the characterization of a sale and leaseback of the same asset should be respected for federal income tax purposes depends on the substance of the transaction, citing Levy v. Commissioner. It says a transaction may be a sale for tax purposes if the benefits and burdens of ownership passed to the purchaser. The determination itself concerned equipment and reached a conclusion on those facts. It is not a ruling about an Arizona warehouse, and it is not a promise that every real-estate sale-leaseback will be respected or rejected. This note is general information. It is not tax advice, legal advice, or an appraisal. A CPA, an attorney, or the other professional named in the note decides how the rule applies to a given property. A CPA and a tax attorney read the draft before anyone treats the rent as fully deductible or the buyer as the owner for tax purposes.
The commercial mortgage, if the buyer finances the purchase, is a loan to the investor. Repayment is supposed to come from the rent the former owner pays as tenant. Term, who pays taxes and insurance and repairs, and the tenant's ability to pay are the file. That is the same family of questions as Arizona net lease and, when the tenant is a credit tenant, credit-tenant lease financing. Capital Market Funds arranges financing for that investor side. It does not buy the building and it does not set a price. No cap rate is stated.
Owner-user programs are usually the wrong shelf
SBA's 504 overview, opened the same day, says a 504 loan cannot be used for speculation or investment in rental real estate. A seller who has just become a tenant is describing an investor's building. Do not force that fact into an owner-user application. The contrast is owner-user versus investor loans. An Arizona dealership that uses this structure is Arizona auto dealership real estate.
Capital Market Funds is not a CPA and not the buyer. Capital Market Funds is not a Fannie Mae DUS lender. The office is 7373 E Doubletree Ranch Rd #255, Scottsdale, AZ 85258. The phone is (480) 495-8072. Capital Market Funds, LLC - CBK-2007014 - Commercial Mortgage Banker and NMLS 1445066.
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Questions
- Does labeling a contract a sale-leaseback decide the tax result?
- IRS written determination 200011004 says the substance controls, including whether benefits and burdens of ownership passed. The label is not the test. A CPA applies it to your draft.
- Who does Capital Market Funds arrange financing for in a sale-leaseback?
- The investor who is buying the building and leasing it back, when that investor wants a commercial mortgage. We do not buy the property and we do not finance the seller's business apart from the real estate.
- Can the seller use an SBA 504 loan to finance the buyer's purchase?
- SBA's 504 page says the program cannot be used for investment in rental real estate. The buyer's loan is an investor loan. An SBA lender, not this page, decides any application the operating company still wants to file.
- Will you quote a sale-leaseback cap rate?
- No. No cap rate, rent, or price is stated. The lease in your draft is the underwriting, not a published yield.