A 1031 exchange (Section 1031 of the Internal Revenue Code) allows you to sell investment property and defer capital gains and depreciation recapture taxes, assuming reinvestment of 100% of equity into “like kind” property of equal or greater value. Any property held for investment purposes or for productive uses in a trade or business qualifies as “like kind” property for 1031 exchange purposes. Section 1031 tax deferred exchanges continue to increase in popularity as more investors nationwide discover the wide range of investment objectives that can be easily met through exchanging.

PDF – 5 Reasons to Exchange
PDF – 1031 Exchanges Explained
PDF – Exchange Time Line
PDF – Sale vs. Exchange

What is “Like Kind” Property?

The term refers to the nature or character of the property, rather than its grade or quality. Real property must be exchanged for “like kind” real property. “Like Kind” property can include, but is not limited to, any of the following, provided it is held for investment:

• Single Family Rental, duplex, multi family apartment building, etc.
• Commercial Property (office building, retail center, restaurant, hotel, industrial property etc.)
• Raw Land for Future Development

PDF – Like Kind Property

What is a “Reverse Exchange”?

A 1031 reverse exchange (Revenue Procedure 2000-37) arises when circumstances require that the replacement property be acquired before closing on the relinquished property. This usually happens during a “sellers market” where recently listed properties are quickly under contract with a buyer. The exchanger performs a “parking arrangement” exchange within 180 calendar days from the Exchange Accommodation Titleholder’s (EAT) purchase of the replacement property. For more information, please contact one of our agents.

PDF – Reverse Exchange

What is the “Improvement Exchange”?

The improvement exchange allows an investor, through the use of a Qualified Intermediary, to make improvements on a replacement property using exchange equity. An investor can maximize investment opportunities using tax deferred dollars while building or improving new investment property. Another benefit is that the new replacement property does not necessarily have to be fully completed within the 180 day exchange period. This type of exchange is also known as a “construction” or “build-to-suit” exchange. For more information, please contact one of our agents.

PDF – Improvement Exchange
PDF – Qualified Intermediary

Additional 1031 Exchange Topics:

PDF - Identification Rules
PDF – Exchange Terminology
PDF – The Exchange Equation: Balancing the Exchange
PDF – Exchanging Multiple Properties
PDF – Partial Tax Deferral
PDF – Converting a Rental to a Residence
PDF – Vacation Homes: Do They Qualify?
PDF – Oil, Gas and Mineral Rights
PDF – Farm and Ranch Exchanges
PDF – Hotel Exchanges
PDF – Revenue Ruling 2002-83: Clarification of the Rules when Purchasing from a Related Party
PDF – Related Party Exchanges
PDF – 1031 Tax Filing Requirements: Beware if you are Filing After October 17th
PDF – Calculating Your Capital Gain: A Worksheet
PDF – What Not to Do in a Deferred Exchange: Lessons Learned

Introduction to Tenant-In-Common (TIC) Investments

Tenant-in-Common is a form of holding title to real estate that allows investors to own an undivided interest in property and thus, if structured properly, satisfy the 1031 requirement for “like kind” property to be exchanged. Each co-tenant is entitled to a comparable portion of the income from the property and must bear equivalent share of expenses. Each co-tenant may sell, lease or will his/her heir that share of the property belonging to him/her.

Tenants-in-Common (TIC) also known as Undivided Fractional Interest, allows investors to purchase an interest in a significant real estate asset, perhaps larger than they could obtain individually. The investor acquires a percentage ownership (title and deed) and receives passive rental income while receiving the tax benefits of traditional real estate. The investors own and control the properties, not a third party.

Each owner has the same rights as would a single owner because a TIC is not a joint venture or partnership. Most TIC properties provide credit worthy tenants and steady monthly income. Also, TIC properties often offer ownership opportunities starting around $250,000. Most TIC properties presented by The Fini Real Estate Group are Class A properties of institutional quality that would be out of the reach of most individual investors. A TIC interest allows an investor the opportunity to acquire great properties within a reasonable budget.

Investors choose TIC property ownership because they can enjoy the benefits of appreciation, cash flow, annual depreciation and flexibility without management problems.

Benefits of TIC ownership:

• Geographic Diversification – Investment can be diversified into more than one property
• Excellent Value – Own a larger more profitable property for less of an investment
• Liquidity – Can be identified and closed in a timely manner
• Flexibility – Flexible size to match your needs
• Low Minimum Investment – Frees up your cash flow for other investments
• Predictable Performance – Potential increased after tax cash flow
• Existing Financing – Pre-arranged financing
• Professional Management – No management hassles
• Economic Diversification – Economies of scale
• Financial Diversification – The ability to invest your money into other properties and expand your portfolio
• No need for third party reports or extensive due diligence as that work was completed by the sponsor of the offering.

Tenant-In-Common as a 1031 Exchange

Example: Traditional Exchange - Non TIC Sale

Let’s assume a person sells the four-plex they’ve owned for 15 years and in which they have equity of $400,000. Depending on the amount of debt put in place on the new property, the purchase price of the replacement property could be around a million dollars. While a million dollars is a lot of money, in the real estate world, it isn’t sufficient to allow for the purchase of an institutional grade property.

Example: TIC Exchange – Advantage

The same $400,000 of equity could purchase a million dollar TIC interest in a $20,000,000 institutional grade property. Chances are that the $20 million dollar property would be of higher quality, have professional management and enjoy a superior tenant profile when compared to a property purchased for $1,000,000. In essence, a TIC purchase allows an investor the opportunity to purchase an outright interest in a quality of property that they could not otherwise afford to purchase on their own.

PDF – In a Bind Identifying Property?
PDF – Revenue Procedure 2002-22: Undivided Fractional Interest

For more information about 1031 Exchanges or TIC’s, please contact us:

The Fini Real Estate Group, Inc.
169 South River Road – Suite 2
Bedford, New Hampshire 03110
Telephone:(603) 647-6800

Or by Email:

Tom Fini, Principal Broker: tfini@fini.com
Matt Toolin, Advisor: mtoolin@fini.com
Kirsten Blanchard, Broker Assistant: kblanchard@fini.com

~ Investment Real Estate Advisors ~