Tax Consequences of Selling
a Cell Tower Lease
One of the most common questions we get about lease buyouts is how the sale of the lease will be treated with respect to taxes. It seems like every tower company agent or lease buyout company agent claims to be a tax expert. They all try to point out how their lease buyout is treated as capital gains while suggesting that other companies' lease buyout offers are treated as regular income. They use disclaimers that they aren't allowed to provide tax advice, but then they do so anyway. As a result, many of our clients ask us about how a lease buyout will be treated from a tax standpoint.
Our answer is always the same. We are not qualified to tell you what the taxes are on the income received from the sale of your lease. We can suggest that many of our clients have gone to their tax advisors and had the lease buyout agreement reviewed for an expert opinion. In the majority of cases, our clients' tax advisors treat these lease buyouts as the sale of a permanent land interest and therefore treat the income as a capital gain. However in some instances, our clients' tax advisors have not agreed with this approach and have suggested that the sale of a lease is akin to the prepayment of that lease and is therefore treated as normal income. Since the capital gains tax is currently at 15% and the normal income tax rate is between 10% and 35% (in 2011) depending upon your income, that could mean a sizeable difference in the taxes paid on the sale of the lease.
If you are unaware of your tax bracket, please see this article from Wikipedia on tax brackets.
Our recommendation is to never sign a letter of intent with any lease buyout company or tower company until you have consulted with your tax advisor or CPA about the tax consequences of a sale of a lease. If you don't have a CPA or tax advisor, you should find one. Don't take the lease buyout company's agent's word on what the taxes will be on a lease buyout. They don't know your tax situation and they shouldn't be advising you. The lease buyout firms have had a reputable accounting firm provide memos suggesting why they believe your lease buyout income should be treated as capital gains. These memos are generic and you should not assume that they directly apply to your situation. Furthermore, your tax advisor is the only one who can advise you on whether you are better off holding the lease and selling presently or in a subsequent tax year.