Home Equity

Sale-Leaseback Tax Treatment & Implications to Consider

By Meela Imperato
Sale-Leaseback Tax Treatment & Implications

Home, sweet home. Home is where the heart is. There’s no place like home. 

With phrases like these in our vernacular, is it any surprise that we find ourselves emotionally connected to our homes? It can be one of life’s greatest joys to own a house, but sometimes situations occur that make sustaining a property a difficult and worrisome experience.

If you own a home that has become financially challenging to manage, what can you do? 

Of course, the traditional avenue of putting your home on the market is an option, but what if you don’t want to sell? Most people are sentimentally attached to the family house, and can’t imagine living anywhere else.

That’s where a sale-leaseback comes in. This article examines how to account for this transaction and the sale-leaseback tax treatment, tax purposes, and implications.

How Do You Account For a Sale-Leaseback Transaction?

What is a sale-leaseback? With a sale-leaseback,, also known as a rent-back agreement, a real estate asset is sold under an agreement that stipulates the home can be rented back by the previous owner. This is viewed as the same transaction (or two parts of the same transaction) rather than two separate transactions.1

How does a sale-leaseback work in terms of accounting for it? A sale-leaseback transaction has a special accounting position, whereby the home seller can retain control of the property by renting it for a set period of time. It falls under “financing,” but what sets it apart from conventional financing is a mutual consensus between the buyer and seller as to whether it will be called a “sale,” or if the seller plans to repurchase the leased asset at the end of the rental period or continue with rent payments, depending on the lease agreement.2

Is a Sale-Leaseback “Off Balance Sheet”?

Up until recently, a sale-leaseback arrangement was qualified as an “off balance sheet” transaction, but a new 2022 rule for the accounting standard was established for recording leases, going forward.3 If the seller retains control of the property and pays to lease it instead of owning it, it is documented on the balance sheet as a leasing liability—but the exact amount can be recorded as a real estate asset at the same time. 

This way, the risks, as well as the benefits, are “shared” between the buyer and the seller of the property.

What Are The Tax Benefits of a Sale-Leaseback Arrangement?

With a sale-leaseback transaction, the seller is able to benefit from deductions like rental expenses, while the buyer can list the asset as owned leased asset, in addition to receiving rental income. In sum, there are tax implications on both ends of the deal.

Advantages of a Sale-Leaseback

Is a sale-leaseback right for you? The sale-leaseback benefits differ between a buyer and a seller, so let’s explore both:

For the Seller: A sale-leaseback option for the seller of a home can be advantageous in many ways. There is immediate cash to put toward other expenses, and then there are options to sell the home or buy it back after the lease term. It can be the best of both worlds by giving legal ownership to another party, but still being able to keep using the real property and only having to claim the lease portion on expense statements.

Here are some additional tax benefits to consider:

  1. Deductions on rental expenses
  2. Tax liability is reduced
  3. Less debt-to-income scrutiny
  4. Avoid downturns in property values

For the Buyer: In addition to steady cash flow from rental payments and being able to keep the property to resell if the seller doesn’t want to repurchase, there are also tax benefits to the buyer, such as:

  1. Depreciation and loan interest deductions
  2. Investment property for portfolio
  3. Lease payments are reported as income
  4. Taxed only on the interest portion

Disadvantages of a Sale-Leaseback

When it comes to how to evaluate a sale-leaseback, some of the cons of a sale-leaseback agreement can affect both the buyer and the seller. Here are a few:

  • Taxable income may need to be assessed according to rental accrual rate
  • The home may not be in the same condition at the end of the operating lease period (which can affect present value)
  • The buyer is responsible for maintenance and repairs (although this could be seen as an advantage for sellers)

Key Takeaways

  • You can live in the home after a sale-leaseback, and you have the option to repurchase after the operating lease period.
  • For buyers, a sale-leaseback can benefit their tax implications and no longer require them to worry about property tax (among other costs)


  1. The Motley Fool. What Is a Sale-Leaseback Transaction? https://www.fool.com/investing/stock-market/market-sectors/real-estate-investing/commercial-real-estate/sale-leaseback/
  2. AICPA/Journal of Accountancy. Accounting for sale and leaseback transactions. https://www.journalofaccountancy.com/issues/2020/jul/accounting-for-sale-and-leaseback-transactions.html
  3. American City Business Journals. The sale-leaseback liquidity solution: Weighing the pros and cons. https://www.bizjournals.com/nashville/news/2022/03/11/the-sale-leaseback-liquidity-solution-weighing.html#:~:text=Under%20previous%20accounting%20treatment%2C%20sale,the%20identical%20amount%20on%20th
  4. Investopedia. Understanding Off-Balance Sheet Financing. https://www.investopedia.com/articles/investing/071513/understanding-offbalance-sheet-financing.asp
  5. National Association of Realtors. Nearly 20 Percent of Sellers Move Out After Leaseback Period. https://www.nar.realtor/blogs/economists-outlook/nearly-20-percent-of-sellers-move-out-after-leaseback-period
Home Equity
Written by Meela Imperato
Senior Director of Brand and Content, Real Estate & Finance Journalist

This article is published for educational and informational purposes only. This article is not offered as advice and should not be relied on as such. This content is based on research and/or other relevant articles and contains trusted sources, but does not express the concerns of EasyKnock. Our goal at EasyKnock is to provide readers with up-to-date and objective resources on real estate and mortgage-related topics. Our content is written by experienced contributors in the finance and real-estate space and all articles undergo an in-depth review process. EasyKnock is not a debt collector, a collection agency, nor a credit counseling service company.