If you are fortunate enough to have a leasing portfolio, then it is most likely difficult to imagine getting rid of all of your assets. While most people associate leasing with land and buildings, high ticket leasing portfolios filled with cars, trucks, and equipment for people and professionals in all industries can be highly cash flow positive endeavors.
When it comes time to sell your cars, trucks, or equipment, huge portfolio adjustments from high volume sales often result in capital gains taxes being applied to asset sales. If your portfolio sale is large enough to warrant capital gains taxes, then a 1031 exchange can be utilized to alleviate expenses when reinvesting in new properties.
In this article, we will outline the steps to take when selling a portfolio and leveraging a 1031 exchange with the IRS. With this, we hope to bring a greater understanding of the benefits of using a 1031 exchange when selling a leasing portfolio, while outlining mineral rights and royalties as one of the best possible investments for your capital gains.
How to Sell Your Leasing Portfolio
Depending on its contents, there are many different ways to approach the sale of a complete leasing portfolio. In modern American industry, the following items are most commonly found in both personal and business leasing portfolios:
- Boats and watercrafts
- Power generators
- Real Estate
- Communication equipment
- Manufacturing equipment
- And much more
In the growing peer to peer economies of today’s marketplace, leasing has become more common than owning for many income and social groups. Chances are today, if you can buy it, then you can lease it. However, leasing is one of the quickest ways to place wear and tear on portfolio assets with the risk of your property losing its value.
When the time comes to sell, large leasing portfolios are often sold with the help of a professional facilitator that leverages connections and networks to find the right buyer. Whereas individual components may be sold one by one, the full outright sale of a complete leasing portfolio with the help of a broker is the easiest way to transform your wealth into a new direction.
Determining the Value of Your Leasing Portfolios
To sell your leasing portfolio, you must essentially just sum up the assets of which you are hoping to sell. Bundling works both for and against investors as a large quantity deal typically results in a high sale price, but a lower overall per-unit commission. Of course, the true value of a leasing portfolio is only determined by how much a person or business is willing to pay for the assets.
Leasing portfolios are valued by the following attributes:
- Number of assets
- Outstanding contracts
- Maintenance history
- Location of assets and transportation concerns
- The expected lifetime of assets and leasing potential
- And more.
Active leasing portfolios with up-to-date contract and maintenance records are the most likely to sell to new investors. More often than not, the amount of capital you will receive for your leasing portfolio is largely determined by when the new investor expects to recoup their purchase through asset leases.
Taxes Paid on the Selling Leasing Portfolios
While leasing has taxes of its own, when you decide it’s time to sell, large amounts of tax are generally paid on the sale of a leasing portfolio. For both private and public leasing companies, the following taxes can be expected:
- Sales Taxes
- Federal Income Taxes
- Capital Gains Taxes
- Local Taxes
- And More
On top of these expenses, large leasing portfolios are commonly sold across international borders. With this, investors can be expected to pay regulatory and local taxes that vary between countries. For sales that remain in the United States, a 1031 exchange can be used to defer capital gains taxes.
Selling Leasing Portfolios with a 1031 Exchange
Experienced investors are usually well aware that 1031 exchanges can be used to defer taxes on the sale of a large asset, so long as the taxpayer reinvests in another property. With this, the “exchange” or “trade” can be completed without having to shell up a few bucks for Uncle Sam. If the new asset is valued less than the sale price of a leasing portfolio, it is possible to defer only some of the capital gains tax. However, most investors use 1031 exchanges as an opportunity to “trade up” for something more valuable.
Leasing Portfolios Like-Kind Properties
In a 1031 exchange, leasing portfolios can be traded for “like-kind” properties. Leasing portfolios are viewed as ordinary private property assets, and can therefore be exchanged for many high ticket properties. This includes:
- Apartment buildings
- Retail stores
- Water and ditch rights
- Mineral rights and royalties
- And much more
Leasing Portfolios 1031 Exchange Timeline
After you sell your leasing portfolio, then you have exactly 180 days to replace your asset with a new property in a valid 1031 exchange. Within these 6 months, at least one property must be identified in the first 45 days, and three total properties may be submitted for consideration to the IRS without having to incorporate their value.
Why Purchase Mineral Rights and Royalties?
While you can purchase almost anything after selling your leasing portfolio, we strongly recommend looking into the possibility of mineral rights and royalties. Here in the United States, mineral rights can be purchased and leased to oil and gas companies that extract and sell natural resources on the open market. As the mineral rights owner, you are then entitled to a steady stream of mineral royalties.
Clearly, mineral rights are not that much different than leasing portfolios with cars, trucks, or equipment. Here, mineral rights are also being leased, however, day-to-day operation is typically much less hands-on for mineral rights owners than in traditional leasing portfolios.
In conclusion, the sale of a leasing portfolio can be maximized by reinvesting the capital with a 1031 exchange. For a similar experience with a passive income stream, former leasing portfolio owners should explore the possibility of mineral rights as a great long-term investment.