The Benefits of Tenancy-in-Common Property

Being a Tenant in Common (TIC) gives the opportunity to investors to diversify their real estate investments as it is allows the ability to invest in more larger properties, rather than smaller properties. This also gives the potential of Increase in the Net Cash Flow. Ownership in Tenants in Common (TIC) properties gives the chance to increase cash flow, provides tax write-offs as well as property appreciation benefits. It is accomplished without a time commitment of active property management that otherwise is required, as the sole owner of the property.

Benefits of Tenancy-in-Common

Tenants in Common (TIC) include some of the following benefits:

• The Scope for an Investment for larger properties.

• Purchasing investment properties as tenants in common (TIC) allows an investor to invest in a large amount of properties similar to warehouses, shopping centers, industrial property, etc. which generally will cost a few million or more.

• Allowing the diversifying of Real Estate Investments.

The Nation’s Leading Real Estate Companies have a source of investment properties and acquires a fixed rate, non-recourse financing with terms for Tenants In Common (TIC) owners. With the Tenants In Common (TIC) property investment, may gain the access to select, national real estate companies, who look for the investment properties for you. The companies can be referred to as TIC Identification companies and they generally provides extensive due diligence on the part of investors. These real estate companies, the lenders and the security companies conduct an extensive due diligence on the investment properties being offered to Tenants in Common (TIC). During the time and resources necessary are being provided in a scale far larger than the most individual investors are capable.

Tenants In Common (TIC) investment property locators use professional property and asset management teams to allow Tenant In Common (TIC) investors to have the benefits of real estate ownership, without the day-to-day property management.

CPEC1031

At CPEC1031, we specialize in 1031 exchanges of all shapes and sizes. Our team has been facilitating exchanges for taxpayers around the United States for more than two decades. We are well-equipped to work with you through every step of your exchange – from start to finish. Reach out to our intermediaries today to see if your property qualifies for a 1031 exchange. Our main office is located in downtown Minneapolis, but we have additional locations across the country.

• Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved

Things to Remember When Dealing with TIC Property

When a property is held in a partnership of LLC, it can get a little contentious between the partners when it comes time to sell. Some of the partners may want to sell the property outright, while others may prefer to do a 1031 exchange to avoid the associated capital gains taxes. Converting the ownership structure into tenancy-in-common is a great way to deal with this type of situation. In this article, we are going to discuss a few things to keep in mind when dealing with Tenancy-in-Common Property.

Prepare Accordingly

The first thing to remember with tenancy-in-common exchanges is to give yourself plenty of lead time. This is a good practice in any 1031 exchange, but especially when TIC property is involved. It’s important to make the switch to tenancy-in-common property as early as possible in the process. If you wait until the day before your exchange to convert, the IRS may not recognize your exchange.

Don’t Forget Your Holding Requirement

Your 1031 property needs to be held for investment purposes or for use in your trade or business. Be sure to hold onto the property for a sufficient time period before beginning your exchange.

1031 Exchanges of Tenancy-in-Common Property

When dealing with tenancy-in-common property, it is important to understand the ins and outs of the 1031 exchange process. At CPEC1031, our qualified intermediaries have more than two decades of experience working with clients in all industries on their real estate exchanges. We can work with you through every stage of your exchange – explaining the process and answering all of your questions along the way. Contact us today at our downtown Minneapolis offices to set up a time to chat with one of our intermediaries about your exchange.

• Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved

1031 Exchange Tips for Tenancy in Common Property

A lot of times people own real estate in a partnership or LLC that's taxed as a partnership. If the property goes up in value some of the partners may be inclined to sell the underlying real estate while other partners are not so inclined because they don't want to pay the taxes.

This divergent opinion between the partners can be exasperated if there's been a death of one of the partners and the heirs of the now-deceased step into the partnership with a stepped-up basis and perhaps a more cavalier attitude about selling the underlying real estate. Because they may not have much of a tax burden if the property is sold, they may be less concerned about the tax consequences of a sale.

Setting up a Tenancy in Common

Furthermore, they may not want to be in a partnership with all the other folks. So when this sort of divergent opinion exists it may be a prudent step to bifurcate the ownership of the asset so that rather than having a partnership we would have a tenancy in common. If a sale were to ever occur, the exchange minded folks could be in one entity, and the cavalier folks that have a high basis and are less concerned about taxes would be in a separate distinct tax-paying entity.

When the sale occurs, hopefully we have two sellers on the purchase agreement, and two sellers that are separately 1099’d by the title company. The exchange minded group can set up their proceeds to go with a qualified intermediary and defer their gain, while the cavalier high basis folks that are less concerned with the tax can simply take their share of the proceeds and go.

Give Yourself Time

When do you want to set up this bifurcation? Do you want to set up the split up on the eve of the closing right before you sell the relinquished property? Do you think the IRS will respect a last minute switch? Probably not. The better course of action is to have this conversation amongst the partners early, before there's even a tacit agreement to sell the property and to break up the property well in advance of any proposed sale. Let some time pass after the break up before you actually sell the property. The IRS is much more likely to respect a reconfigured ownership arrangement if it is done well in advance of any sale and some time has passed.

1031 Holding Requirement

Furthermore, remember there's a holding period requirement in section 1031 that the relinquished property must have been held for investment or business purposes. If you do a drop and then a swap immediately you may not have held your property for a sufficient period to satisfy the requirements of 1031.

• Start Your Exchange: If you have questions about 1031 exchanges of TIC property, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2017 Copyright Jeffrey R. Peterson All Rights Reserved

Can a Married Couple Purchase their Replacement Property with a Family Member as Tenants-in-Common?

Sometimes a couple will be doing a 1031 exchange where the relinquished property was owned by them as husband and wife, but they want to purchase the new replacement property with another family member as co-owners or tenants-in-common. In this article, we'll explain some key requirements to keep in mind while doing such an exchange.

1. Size Matters

In order to defer all of the gains, the ownership interest in the replacement property received by our exchanging husband and wife must be or equal or greater value than the net value of the sold relinquished property. So if a co-owning relative takes too large of a percentage ownership portion of the replacement property, our exchangors may not receive sufficient value to defer all of their gains.

2. Follow the Money

All of the exchange funds from the sale of the husband and wife’s sold relinquished property must be used exclusively for the purchase of their ownership interest in the replacement property, and may not be used to purchase the co-owning relative’s ownership interest. Each co-owner should contribute and pay for their proportionate share of the new replacement property with their own money.

3. Be Careful ~ Partnership Interests are Excluded from 1031

Once you own the new property, you may be tempted to file a partnership tax return (Form 1065) for the co-ownership of the property (like a joint venture). However, that would be inconsistent with the requirements for a 1031 exchange. Avoiding classification as a partnership for federal income tax purposes will be important for our exchangors to preserve their 1031 exchange. Generally, one cannot exchange into a partnership interest, even if partnership’s only asset is the subject real estate [subject to a narrow exception for partnerships with a valid 761(a) election in place; and rare situations where receipt of 100% of a partnership, results in consolidating ownership in one taxpayer such that it is equivalent to an acquisition of a "disregarded entity"].

• Start Your Exchange: If you have questions about replacement property rules, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2017 Copyright Jeffrey R. Peterson All Rights Reserved

Tenancy-in-Common Distributions in a 1031 Exchange

Many taxpayers who are looking to do a 1031 exchange on tenancy-in-common property have questions about distributions. In Giurbino v. Franchise Tax Board, the California Board of Equalization discusses many of the concepts that would be involved in an application of section 1031 to such a transaction.

Tenancy-in-Common Distributions

In general, the determination of whether the TIC (Tenancy-in-Common) distributions would be sustained as actual (vs. fictional) distributions would involve an assessment of the following:

• Who negotiates the sale

• Who enters into the purchase agreement

• The amount of time that passes between negotiation and consummation of the sale

• The motivation behind the distributions (whether the court thinks this was done solely to obtain a different tax outcome without changing the underlying nature of ownership)

"Substance Over Form"

In making this determination, courts apply a “substance over form” approach. Notably, some of the decisions referenced in Giurbino also took into consideration when the distribution deeds were recorded and whether there were restrictions under lending arrangements on a transfer of the property.

The IRS has also recently (in 2008) amended the partnership tax return by the addition of questions relating to the completion of like-kind exchanges and distribution of TIC interests in partnership property during the current or prior tax year. For this reason, some commentary on “drop and swap” transactions suggest waiting for a period of up to two years following distributions before completing a like-kind exchange. However, there is no particular holding period requirement, nor is there any particular holding period which would absolutely insulate the transaction from scrutiny.

• Start Your 1031 Exchange: If you have questions about earnest money deposits or other items on the closing statement in a like-kind exchange, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2017 Copyright Jeffrey R. Peterson All Rights Reserved