1031 Exchange & TIC

WHAT IS A 1031 EXCHANGE?

A 1031 Exchange is an IRS-authorized process where like-kind business or investment properties are exchanged without immediate tax liability to the property owner.
The IRS requires that a property owner use a neutral third party, known as an intermediary or accommodator, to facilitate a 1031 Tax Free Exchange.

A 1031 tax-deferred exchanges are also commonly known as: Starker exchanges, delayed exchanges, like-kind exchanges, 1031 exchanges, section 1031 exchanges, tax-free exchanges, nontaxable exchanges, real estate exchanges, real property exchanges. Though all of these terms refer to the same thing, the most typical term used today is the tax deferred 1031 exchange.

·   We can Assist in finding all 1031 replacement property options.
·   Locate and evaluate Triple Net Lease Properties (NNN), apartment complexes, rental and other qualified properties.
·   Educate you on how properties can qualify.
·   Connect you with a Qualified Intermediary, 1031 Attorney or accountant.

1031 Exchange General Requirements:

A trade of Like-Kind property, business or investment property, must meet the following conditions according to the IRS to be non-taxable:

1. The Relinquished Property and the Replacement Property must be business or investment property. No property designated for personal use can be traded in a Like-Kind Exchanges. Example: A valid exchange will be an apartment complex, an invalid exchange will be a home or car.

2. The property must not be held primarily for sale. This includes merchandise held for the purpose of selling to customers.
3. The property must not be stocks, bonds, notes, certificates or trust or beneficial interest, or any other securities.

4. A trade of Like-Kind property must take place. Like-Kind property includes Property that falls under the same of 13 General Asset Class or the same Product Class (in the North American Industry Classification System [NAICS]).

5. The Replacement Property must be identified in writing within 45 days after the day that the Relinquished property is given up.

6. The Replacement Property must be received on or before:

·   180 days after the day that the Relinquished Property is given up; or
·   The due date, including extensions, for the tax return for the year in which the transfer of the Relinquished Property occurs.

TENANCY IN COMMON (TIC)

A fractional or partial ownership interest in a piece of property, rather than owning the entire piece of property.

Tenants in Common (TICs) can be an effective way to invest in institutional quality real estate for those looking for little to no-management responsibility. Because the investor owns a fraction of the property the amount of equity (cash) needed is considerably less than what would be required to own the entire property outright. One of the major strengths of Tenant in Common properties is the ability for smaller investors to more fully diversify their real estate holdings to reduce risk.

Benefits of Tenant in Common Investments:

    * Little to no-management responsibility.
    * Long term leases with multiple credit tenants can reduce risk.
    * Ease of diversification to reduce risk.
    * Each Tenant in Common owner has the same rights as an individual owner.
    * Fee-simple deed at closing.
    * Pre packaged real estate with debt frequently in place.
    * Pre packaged due diligence to facilitate the selection process.
    * Pro-rata share of all net monthly income, tax benefits, and appreciation/depreciation.
    * Potential deferred current and future capital gains taxes.
    * Investment can be scaled to fit 1031 exchange requirements.
    * Property and asset management reports to each owner.
    * Income typically distributed monthly with periodic operating reports.

Exit Strategy

Tenant in Common owners typically exit when the entire property is sold. Owners may also sell their individual interest at any time. On sale the owner can either pay capital gains and recapture taxes or do a 1031 exchange. As with all real estate, tenant in common interests are not liquid like a stock or bond. The degree or liquidity or lack of liquidity will vary with each individual investment.