RECYCLED PROFITS: New Ways To Use Your Assets

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    It is not at all uncommon for self-storage operators to own the facility’s real estate or other assets personally and rent them to their business. In fact, it is often a smart move from both a tax and a business standpoint. However, the ever-vigilant Internal Revenue Service is increasingly challenging both the validity and the tax treatment of the losses often generated with self-rental.

    Could the self-storage business profit from an infusion of badly-needed cash? Is the storage owner reluctant to invest additional money? Or, are the tax benefits from the busi- ness wasted because of the operation’s low or nonexistent profits—and its low tax bracket?

    One transaction that can help in all of these situations is the often neglected and little understood sale leaseback, in which the self- storage operation’s real estate or, in some cases, its equipment, are sold to an outside purchaser who then leases it back to the business. Many business owners have reaped tax benefits from this viable financing tool. Increasingly, however, that tax benefit is turn- ing into a tax trap for the unwary.

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