Legal Blog

M & A Nuggets: Real Estate Issues- No. 2

real-estateThis nugget is the second in a series discussing real estate issues related to the purchase of a business that uses real estate owned by the seller or its owner.  This nugget will discuss a potentially valuable tax planning tool.

Suppose that the owner of the seller also owns the real estate used by the business.  The negotiations for the purchase of the business will include negotiations for a new lease.  As discussed in a previous nugget, the purchase price for the business must be allocated among the assets of the business being purchased.  The allocation has significant tax consequences to the purchaser and the seller.  Separate from the allocation of the purchase price among the business assets, there is an opportunity to allocate the total amount to be paid to the seller between the business assets and the lease, meaning rent.  The tax benefit to the purchaser is that any amounts paid as rent are deductible as an ordinary expense.  Care must be taken to assure that amounts allocated to the lease as rent payments will pass muster if tested against what a fair market rent would be.  The lesson here, however, is that before thinking about how the purchase price should be allocated among the business assets, explore whether it would be reasonable to allocate part of the monies to be paid to the lease.

 

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ABOUT GLENN D. SOLOMON

Glenn D. Solomon Esq., is a principal at the law firm of Offit Kurman and has provided counsel to businesses and business owners for more than twenty-five years, with extensive experience in the purchase and sale of businessesstructuring ownership agreements, and advising companies in financial distress

 

 

 

 

ABOUT OFFIT KURMAN

Offit Kurman is one of the fastest-growing, full-service law firms in the Mid-Atlantic region. With 120 attorneys offering a comprehensive range of services in virtually every legal category, the firm is well positioned to meet the needs of dynamic businesses and the people who own and operate them. Our eight offices serve individual and corporate clients in the Maryland, Delaware, New Jersey, and Northern Virginia markets, as well as the Washington DC, Baltimore, Philadelphia, and New York City metropolitan areas. At Offit Kurman, we are our clients’ most trusted legal advisors, professionals who help maximize and protect business value and personal wealth. In every interaction, we consistently maintain our clients’ confidence by remaining focused on furthering their objectives and achieving their goals in an efficient manner. Trust, knowledge, confidence—in a partner, that’s perfect.

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