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Tax-Efficient Strategies for Disposition of Appreciated Real Estate: Learn about deferring taxes through institutional grade properties via 1031 exchanges.


Above are some examples of institutional grade assets available through the TIC ownership structure 		  

Investing in $50MM+ assets used to be out of reach for most investors. Not anymore. Learn the six things every investor should know about this investment option, called "Tenant In Common" (TIC), where you own a percentage of an institutional grade asset.

Contemplating a 1031 exchange? IRS Code Section 1031 is one of the single greatest wealth building tools available to the real estate investor, allowing you to defer the payment of capital gains taxes when selling an investment property and exchanging into another. And it gets even better with TICs: You can perform a 1031 exchange out of an existing investment property, and into an institutional grade asset as a fractional TIC owner.

Use our 1031 & Replacement Property Calculator to calculate your tax liability & deferral options when selling.

Search Our Knowledge Base of Replacement Property Q&A's



Tenant-In-Common (TIC) Ownership

Imagine having the ability to invest in an institutional grade asset, such as an office park, multi-family apartment building, shopping center or strip mall. We'll show you how to do this via TIC fractional ownership.

In a TIC investment, each investor owns a "fractional, undivided interest" (a portion) of a real estate asset. This may remind you of a REIT investment, but there are many differences between TICs and REITs:

TIC
REIT
Direct investment into a single real estate asset (often with multiple tenants)A stock, traded on the major exchanges. The REIT invests in real estate, either through properties or mortgages
Undivided ownership of actual real estate (deeded interest)Equity REITs invest in and own properties. Revenues come principally from property rents. There are also Mortgage REITs and Hybrid REITs.
Investment performs independently from the stock marketStock that is affected by the general movement of the stock market
Direct flow-through of the tax deduction and cashflowCash flow participation through dividend payouts
Not as liquid; average hold is 4, 7 or 10 yearsMore liquid; most REIT shares can be bought & sold like stocks.
Yes, can 1031 into and out of TIC investments because they are real estate.No, cannot perform 1031 exchanges into and out of REITs, since ownership is stock, not real estate.

The distinction between TIC and REIT is especially significant from the IRS' point of view, allowing you to perform a 1031 exchange into and out of a TIC (something you can't do with a REIT).


Six Things You Should Know About TICs

1. The IRS allows 1031 Exchanges into & out of TICs. So long as a TIC investment follows IRS guidelines, the IRS has provided guidance on how they may be used in 1031 Exchanges, giving you a great investment option if performing a 1031.
2. TICs Are Securities. Since Tenant-In-Common investments are sold through private placement offerings as securities, only registered securities representatives can sell them. All aspects of the investment must be thoroughly disclosed in a Private Placement Memorandum (PPM) to the investor.
3. Only Accredited Investors can purchase TICs. Since TICs are sold as private placement securities, they may only be sold to accredited investors. By filling out the Investor Questionnaire, we'll be able to establish you as an accredited investor. You must earn over $200,000 a year if single or $300,000 a year if married, or have over $1,000,000 in assets.
4. TICs are not liquid investments. TICs are not easily divested and there is currently no secondary market for TIC investments. A TIC investor must be willing and able to invest in a TIC project for 7 to 10 years (the average term of a TIC investment). Although technically a TIC can be resold before the asset's term, it is not typically done.
5. TICs typically provide positive cash flow. Although there is no guarantee that a TIC will provide positive cash flow, TICS are generally structured to provide passive income through monthly cash flow disbursements.
6. If a TIC asset gains value, you profit. Since as a TIC investor you hold a deed for your percentage of the TIC investment, if the underlying asset gains in value, you share in that equity gain based on your percentage ownership stake.

  

Fill out our investor questionnaire, so we can qualify you as an accredited investor. Sign and fax it to our private fax at 703.997.8872.

Qualifying you as an accredited investor will allow us to give you details on specific, available TIC investment properties, and send you a Private Placement Memorandum (PPM) for each TIC property you're interested in. A PPM is similar in concept to a Prospectus for a stock, containing details on the property. The PPM gives you an in-depth look at the investment and its risks & projected returns.


How 1031 Tax Deferred Exchanges Work

Under 1031, all real property (as it is defined by state law) is considered "like-kind" with other real property of the same nature and quality. The following are examples of qualified "like-kind" real property exchanges:

  • Raw land for rental property
  • Single family rental for multi-family rental
  • Retail space for motel/hotel
  • Farms/ranch for golf course
  • 30-year leasehold interest for fee simple interest
  • Non-income producing raw land for income-producing rental property

The use of a qualified intermediary is the most common method used to complete a valid tax-deferred exchange quickly and easily. As a qualified intermediary, Wachovia Exchange Services, Inc. (WES) typically holds funds during the course of deferred exchanges. There are several steps involved in a 1031 transaction of real property:

  • The taxpayer signs a contract to sell the relinquished property to the buyer.
  • Prior to the property closing, the taxpayer retains WES to be the qualified intermediary.
  • At the closing of the relinquished property, the exchange funds are wired or a check is sent to WES.
  • Within 45 days after the transfer of the relinquished property, the taxpayer completes the Identification of Replacement Property exhibit and returns it to WES (if the taxpayer does not acquire all replacement property within the first 45 days).
  • The taxpayer has a maximum of 180 days in the exchange period (or until the tax filing deadline, including extensions, for the year of the sale of the relinquished property), to acquire any and all replacement properties.
  • At the closing of the replacement property, WES wires the exchange funds or a check is sent to complete the exchange.

Rules & Timelines

Basic Exchange Rules

  • Both relinquished and replacement property must be "held for productive use in a trade or business or held for investment" and property must be "like-kind." All real property is like-kind.
  • The purchase price of the replacement property must be equal to or greater than the net sales price of the relinquished property.
  • All cash or other proceeds received from the sale of the relinquished property must be used to acquire the replacement property.

Exchange Timelines

An Investor has 180 days to complete their exchange after the transfer of the relinquished property, or the due date of their tax return for the year in which they relinquish their property (unless an extension is filed), whichever occurs first. By the 45th day replacement property MUST be identified in a manner consistent with the IRS regulations.

For more information about 1031 exchanges, contact Wachovia Exchange Services at (703) 801-4178.

You may also wish to review the risks of TIC investments.

Attention REALTORS and commercial real estate brokers: Click here to read about the possible SEC NAR exemption.