TIC (Tenancy in Common) 1031 Exchanges

tenancy in common 1031

TIC stands for a Tenancy in Common which is an old-fashioned way to own real estate. It's a co-ownership arrangement going back to Old English common law where the serfs got together and collectively pooled their money to acquire an estate. In this article, we explain the benefits of a TIC as they relate to 1031 exchanges.

Benefits of a TIC

If you're looking to redeploy some cash and you can't afford to buy a real estate investment on your own you can bring in a TIC co-owner - someone to invest with you on that replacement property. Each of you would have an ownership interest in the property proportionate to your contribution. So if you provide 45% of the down payment you would be entitled to 45% of the property. Your co-owner will then get the other 55% if they put down their proportionate share of the purchase.

Partnership Interests are Excluded from 1031

The reason that tenancy in common is so important is that in the Internal Revenue Code section 1031, partnership interests are excluded from 1031. So if I want to bring in money with me on a purchase I can't bring in a partner and own the property in a partnership.

But what I can bring in is an investor or investors as tenants in common and we can take down that property kind of like a pie chart for each of us has a proportionate interest in the property allocated based on how much can we contribute for the buy.

Practice Tip:  If you want to be treated as a tenancy in common, then do not file a partnership tax return with your TIC co-owners for the property, because that may undue all of your hard work in trying to arrange for your interest in the property to be treated as a qualifying interest in real property.

  • 1031 Hotline: If you have questions about tenancy in common law, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

 

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