Tenant In Common 1031

1-877-812-1031

"Tenant In Common" 1031

Being a Tenant In Common through a 1031 Exchange is a form of real estate asset ownership in the United States in which two or more persons have an undivided, fractional interest in the asset, where ownership shares are not required to be equal, and where ownership interests can be inherited in the event of the death of one holder. Each co-owner receives an individual deed at closing for his or her undivided percentage interest in the entire property. It is important to note that a TIC owner has the same rights and benefits as a single owner of property.

Although TIC ownership has been used for many years, its popularity has been increasing dramatically due to a recent IRS ruling. Exchangers often have difficulty in locating and closing suitable replacement property within the 45 day identification period and the 180 day closing period. Identifying 1031 TIC properties when doing a 1031 exchange can significantly reduce these risks.

Like-Kind Exchanges

Generally, if you exchange business or investment property solely for business or investment property of a like-kind, no gain or loss is recognized under Internal Revenue Code Section 1031. If, as part of the exchange, you also receive other (not like-kind) property or money, gain is recognized to the extent of the other property and money received, but a loss is not recognized.

Section 1031 does not apply to exchanges of inventory, stocks, bonds, notes, other securities or evidence of indebtedness, or certain other assets.

Like-Kind Property

Properties are of like-kind, if they are of the same nature or character, even if they differ in grade or quality. Personal properties of a like class are like-kind properties. However, livestock of different sexes are not like-kind properties. Also, personal property used predominantly in the United States and personal property used predominantly outside the United States are not like-kind properties.

Real properties generally are of like-kind, regardless of whether the properties are improved or unimproved. However, real property in the United States and real property outside the United States are not like-kind properties.

How A 1031 Exchange Is Accomplished

1. An investor decides to sell investment property and do a 1031 exchange.
2. He contacts a qualified intermediary (QI) and they enter into an agreement.
3. The investment property is put on the market.
4. An offer to purchase the investment property is accepted and signed by the QI.
5. Escrow for the sale is opened, and a preliminary title report is produced.
6. The QI sends required exchange documents to the escrow closer for signing at property closing.
7. Escrow closes.
8. Within the first 45 days after the close of escrow on the sale of the relinquished property, the investor identifies replacement properties as required by law. This is known as the "Identification Period".
9. Within 180 days after the close of escrow on the sale of the relinquished property, the investor closes on one of the replacement properties which he has identified. This is called the "Exchange Period". This completes the exchange. No cash – or ‘’boot’’, as it is known – is taken by the exchanger.

Examples of a 1031 Exchange

An investor buys a strip mall (a commercial property) for $200,000. After six years he could sell the property for $250,000. This would result in a gain of $50,000 on which the investor would have to pay a capital gains tax, but, if he invests the proceeds from the $250,000 sale in another property, then he would not have to pay any taxes on the gain at that time.

An owner of a detached house on 3 acres is transferred by his employer to another state. Rather than selling the home, which will no longer be his personal residence, he chooses to rent it out for a period of time. After ten years, he decides that he wants to sell it but, at the same time, he has a grown son who will be going to college in yet another state. He decides that he wants to buy an apartment building in the college town for the son and other students to rent while they are in school. His house has appreciated from $200,000 to $300,000. Therefore, he arranges for an IRC 1031 Exchange, and buys the new property, thus avoiding the capital gain at that time.

In addition to the sale of real estate, selling an interest in real property may also qualify for a 1031 Exchange. An example of this would be the sale of an easement.

Accuracy is implied but cannot be guaranteed. Rules/laws can be updated and/or changed from time to time. Sources for this site include: http://en.wikipedia.org, www.law.cornell.edu, http://www.irs.gov/

Find out how to search and register domain names for as little as $8.95 per year. *plus 0.25 ICANN fee.