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Sales of cell towers or billboards are quite common. The sale may be from one taxpayer to another or to a company who is in the business of aggregating these assets for its own business of acquiring, owning, and leasing such assets. The value of the cell tower or billboard is largely a function of the value of the lease, i.e. the rent, term, and strength of the lessee. Oftentimes the sale prices can be considerable, which in turn, may cause a significant tax event to the seller. In many instances, the availability of a tax deferred exchange under Section 1031 of the Internal Revenue Code can be the key to enabling a sale to take place.
Use of Easement for Sale
As many people know, One particular Private Letter Ruling provides validation of such a structure for the exchange of a cell tower easement. Although a Private Letter Ruling is “private” and can only be relied on by the recipient, the IRS does publish them to let the public know its position on the subject of the ruling.
Facts of the Private Letter Ruling
Facts of the PLR included a proposed “exclusive easement” for the site of the cell phone tower and “non-exclusive easements” for road access to the tower, maintenance, and access to the rooftop. transfer of the easement also included an assignment of the lease from the taxpayer to the easement owner. PLR references that most easements are perpetual unless the easement owner abandons the site for a number or years. It also states that a small number of easements are long term but not perpetual in duration.
This PLR provides a roadmap to structing an easement sale which includes the transfer of the lease of the cell tower or billboard located on the easement. It is important to note that the ruling references perpetual and long-term easements. That raises the question whether any cell tower or billboard sale requires a perpetual easement. In the PLR, the easement was to cease if the easement owner abandoned the property. That would seem to affect its otherwise perpetual nature. In addition, in the Analysis section of the PLR, the Service specifically noted that the “Taxpayer will acquire, own and lease perpetual and long-term easements…” [emphasis added]. In the Conclusion section of the PLR the Service states that “an easement acquired by Taxpayer under and Easement Agreement is an “interest in real property” that qualifies, under § 856(c)(5(B), as a real estate asset…”. There is no reference in the conclusion indicating that the long-term easement would be treated differently than a permanent easement.
Also, it should be noted that the taxpayer in the PLR was a REIT and there are some small differences between the Code section real estate definition for REITs and 1031, however those differences are not material for the treatment of the easements.
No Inference from Treatment of Lessee’s Interest in a Long Term Lease
People tend to equate the necessary easement term with the well know fact that a lessee’s interest in a lease with more than 30 years to run (including renewal options) is like kind to conventional real estate. Unfortunately, that is not particularly relevant to the issues above. In connection with the cell tower or billboard easement, it is the landowner’s interest in the easement that is being sold and the lessor’s interest in the lease being assigned. That is quite different than a lessee’s interest in a lease.
Summary
There is an active market in the sale of cell towers and billboards. Similar assets such as wind farms, solar arrays, turbines, roof top antennas, and fiber optic cable should be capable of being exchanged in the same manner as cell tower and billboard easements. While some of these assets are valued based upon the value of the lease associated with the asset, an owner’s interest in a lease cannot be the subject of a 1031 exchange. PLR 1149003 provides some guidance on how to structure the transfer of the lease value by selling the easement under the leased asset. To maximize the validity of the easement, it would be best if the easement were perpetual in nature. However, it may be possible to do the exchange that is long term in nature. As always, it is always advisable to consult with professional tax or legal advisors before proceeding with such a transaction.

Sales of cell towers or billboards are quite common. The sale may be from one taxpayer to another or to a company who is in the business of aggregating these assets for its own business of acquiring, owning, and leasing such assets. The value of the cell tower or billboard is largely a function of the value of the lease, i.e. the rent, term, and strength of the lessee. Oftentimes the sale prices can be considerable, which in turn, may cause a significant tax event to the seller. In many instances, the availability of a tax deferred exchange under Section 1031 of the Internal Revenue Code can be the key to enabling a sale to take place.
Use of Easement for Sale
As many people know, One particular Private Letter Ruling provides validation of such a structure for the exchange of a cell tower easement. Although a Private Letter Ruling is “private” and can only be relied on by the recipient, the IRS does publish them to let the public know its position on the subject of the ruling.
Facts of the Private Letter Ruling
Facts of the PLR included a proposed “exclusive easement” for the site of the cell phone tower and “non-exclusive easements” for road access to the tower, maintenance, and access to the rooftop. transfer of the easement also included an assignment of the lease from the taxpayer to the easement owner. PLR references that most easements are perpetual unless the easement owner abandons the site for a number or years. It also states that a small number of easements are long term but not perpetual in duration.
This PLR provides a roadmap to structing an easement sale which includes the transfer of the lease of the cell tower or billboard located on the easement. It is important to note that the ruling references perpetual and long-term easements. That raises the question whether any cell tower or billboard sale requires a perpetual easement. In the PLR, the easement was to cease if the easement owner abandoned the property. That would seem to affect its otherwise perpetual nature. In addition, in the Analysis section of the PLR, the Service specifically noted that the “Taxpayer will acquire, own and lease perpetual and long-term easements…” [emphasis added]. In the Conclusion section of the PLR the Service states that “an easement acquired by Taxpayer under and Easement Agreement is an “interest in real property” that qualifies, under § 856(c)(5(B), as a real estate asset…”. There is no reference in the conclusion indicating that the long-term easement would be treated differently than a permanent easement.
Also, it should be noted that the taxpayer in the PLR was a REIT and there are some small differences between the Code section real estate definition for REITs and 1031, however those differences are not material for the treatment of the easements.
No Inference from Treatment of Lessee’s Interest in a Long Term Lease
People tend to equate the necessary easement term with the well know fact that a lessee’s interest in a lease with more than 30 years to run (including renewal options) is like kind to conventional real estate. Unfortunately, that is not particularly relevant to the issues above. In connection with the cell tower or billboard easement, it is the landowner’s interest in the easement that is being sold and the lessor’s interest in the lease being assigned. That is quite different than a lessee’s interest in a lease.
Summary
There is an active market in the sale of cell towers and billboards. Similar assets such as wind farms, solar arrays, turbines, roof top antennas, and fiber optic cable should be capable of being exchanged in the same manner as cell tower and billboard easements. While some of these assets are valued based upon the value of the lease associated with the asset, an owner’s interest in a lease cannot be the subject of a 1031 exchange. PLR 1149003 provides some guidance on how to structure the transfer of the lease value by selling the easement under the leased asset. To maximize the validity of the easement, it would be best if the easement were perpetual in nature. However, it may be possible to do the exchange that is long term in nature. As always, it is always advisable to consult with professional tax or legal advisors before proceeding with such a transaction.

Sales of cell towers or billboards are quite common. The sale may be from one taxpayer to another or to a company who is in the business of aggregating these assets for its own business of acquiring, owning, and leasing such assets. The value of the cell tower or billboard is largely a function of the value of the lease, i.e. the rent, term, and strength of the lessee. Oftentimes the sale prices can be considerable, which in turn, may cause a significant tax event to the seller. In many instances, the availability of a tax deferred exchange under Section 1031 of the Internal Revenue Code can be the key to enabling a sale to take place.
Use of Easement for Sale
As many people know, One particular Private Letter Ruling provides validation of such a structure for the exchange of a cell tower easement. Although a Private Letter Ruling is “private” and can only be relied on by the recipient, the IRS does publish them to let the public know its position on the subject of the ruling.
Facts of the Private Letter Ruling
Facts of the PLR included a proposed “exclusive easement” for the site of the cell phone tower and “non-exclusive easements” for road access to the tower, maintenance, and access to the rooftop. transfer of the easement also included an assignment of the lease from the taxpayer to the easement owner. PLR references that most easements are perpetual unless the easement owner abandons the site for a number or years. It also states that a small number of easements are long term but not perpetual in duration.
This PLR provides a roadmap to structing an easement sale which includes the transfer of the lease of the cell tower or billboard located on the easement. It is important to note that the ruling references perpetual and long-term easements. That raises the question whether any cell tower or billboard sale requires a perpetual easement. In the PLR, the easement was to cease if the easement owner abandoned the property. That would seem to affect its otherwise perpetual nature. In addition, in the Analysis section of the PLR, the Service specifically noted that the “Taxpayer will acquire, own and lease perpetual and long-term easements…” [emphasis added]. In the Conclusion section of the PLR the Service states that “an easement acquired by Taxpayer under and Easement Agreement is an “interest in real property” that qualifies, under § 856(c)(5(B), as a real estate asset…”. There is no reference in the conclusion indicating that the long-term easement would be treated differently than a permanent easement.
Also, it should be noted that the taxpayer in the PLR was a REIT and there are some small differences between the Code section real estate definition for REITs and 1031, however those differences are not material for the treatment of the easements.
No Inference from Treatment of Lessee’s Interest in a Long Term Lease
People tend to equate the necessary easement term with the well know fact that a lessee’s interest in a lease with more than 30 years to run (including renewal options) is like kind to conventional real estate. Unfortunately, that is not particularly relevant to the issues above. In connection with the cell tower or billboard easement, it is the landowner’s interest in the easement that is being sold and the lessor’s interest in the lease being assigned. That is quite different than a lessee’s interest in a lease.
Summary
There is an active market in the sale of cell towers and billboards. Similar assets such as wind farms, solar arrays, turbines, roof top antennas, and fiber optic cable should be capable of being exchanged in the same manner as cell tower and billboard easements. While some of these assets are valued based upon the value of the lease associated with the asset, an owner’s interest in a lease cannot be the subject of a 1031 exchange. PLR 1149003 provides some guidance on how to structure the transfer of the lease value by selling the easement under the leased asset. To maximize the validity of the easement, it would be best if the easement were perpetual in nature. However, it may be possible to do the exchange that is long term in nature. As always, it is always advisable to consult with professional tax or legal advisors before proceeding with such a transaction.

As many have reported, Presidential candidate Joe Biden announced on Tuesday, July 21st that he plans to raise cash for childcare and elderly services by revamping the rules for 1031 exchanges of real property to limit the tax deferral opportunity to taxpayers with annual incomes of less than $400,000 per year. Targeting 1031 exchanges such as what Biden proposes is not new. Various administrations of both parties have attempted for years to limit the extent of 1031 exchanges or repeal the provision to raise revenue for other programs. Ultimately those attempts have failed when, upon further consideration, they realized that they would have essentially jettisoned a tax provision that is not a “loophole” but was made a part of the Internal Revenue Code in 1921 because it embodied good tax policy and directly influenced economic growth. There were sound reasons this concept was put into the Tax Code nearly 100 years ago. Those policy considerations are true now more than ever.
Why 1031 exchanges are important
The reasons for Section 1031 exchanges have become even more important in the tough economic times created by the current pandemic. Repeal or limitation of 1031 exchanges would only run counter to our shared goal of pulling the Country out of current economic doldrums. The https://www.1031taxreform.com/ling-petrova/”>empirical data amassed by diverse groups in the real estate industry is overwhelming that real estate transactions and specifically the ability to defer capital gains by reinvesting in business use or investment property is one of the strongest economic drivers in our country. The temptation to use the dramatic limitation of Section 1031 is shortsighted when viewed in the context of the effect on many other persons, industries and taxing entities that benefit from the frequent transfer of real estate ownership.
1031 exchange impacts Main Street America
In addition, contrary to the often used refrain that rich persons or big real estate developers are the main beneficiaries of 1031 exchanges, the fact is that the bulk of real estate exchanges done in this country are in the $500,000 range and many times less than that. In those situations where the exchange value is higher, in situations involving family held Main Street businesses, farms, ranches and other properties, the value being exchanged represents sometimes multi-generational blood, sweat and tears expended in saving up a nest egg that can be used to improve the taxpayers’ properties and quality of life.
1031 exchanges strongly influence economic growth
Biden stated that he wants to limit 1031 exchanges so he can use the revenue gained to improve child care and care for the elderly. However, to that point, owners of elder care facilities and child care facilities have regularly used 1031 exchanges to shed themselves of an outmoded facility and upgrade into facilities that better serve the children and elderly folks in their charge. As prior administrations ultimately concluded, when considering the overall impact, it does not make good business sense to overly limit an investment tool that benefits all Americans, spanning all economic strata and demographics, and is one of the most powerful economic drivers this country has.