Tenancy in Common (TIC) in the context of a 1031 exchange refers to a type of ownership where multiple individuals or entities own separate undivided interests in a property. This means that each owner has a separate interest in the property, but they all have the right to use and occupy the entire property. In a TIC arrangement, each owner holds their interest independently and can sell or transfer it separately.
- Tenancy in Common (TIC) refers to a type of ownership where multiple individuals or entities own separate undivided interests in a property.
- In a TIC arrangement, each owner holds their interest independently and can sell or transfer it separately.
- In a 1031 exchange, each owner can exchange their separate interest in the property for another similar property.
Suppose three investors want to purchase a rental property together. Instead of buying the property as a partnership, they opt for a TIC arrangement, in which each individual holds a one-third interest in the property. In a 1031 exchange, each owner can exchange their separate interest in the property for another similar property, deferring the payment of capital gains taxes on their portion of the property sale.
- Make sure you have a clear agreement in place with your co-tenants regarding the use and occupation of the property.
- Consider the impact of a co-tenant’s actions on your ownership interest and future 1031 exchange plans.
- Consider the tax implications of a TIC arrangement and how they may impact your 1031 exchange.
- Carefully consider the implications of a TIC arrangement before entering into one.
- Seek the advice of a tax professional or real estate attorney to ensure that your TIC arrangement meets the requirements of the tax code for a 1031 exchange.
- Be aware of the limitations of TIC ownership, including the difficulty of obtaining financing and the need for unanimity in decision-making.
- Properly structure the TIC arrangement to maximize the benefits of a 1031 exchange and minimize the potential drawbacks.
- Consider alternative ownership structures, such as a limited liability company (LLC), that may offer more flexibility and control in a 1031 exchange.
- Regularly review your TIC arrangement to ensure that it continues to meet your investment goals and 1031 exchange requirements.
