While working with many second home property Buyer's and Sellers this weekend in the beautiful Methow Valley, it came to my attention that many Sellers and Buyers are unaware of the TIC investment option for 1031 Like Kind Exchanges.
Whether you have an improved or unimproved real estate investment property within the United States, you may be interested in a 1031 Exchange. The 1031 Exchange in the IRS Code offers a way for real estate investors to defer capital gains taxes by exchanging one investment property for another.
The general steps for a typical 1031 Exchange are:
Offer for sale the investment property.
Accept offer on your investment property of which you have informed all parties that this is part of a 1031 Exchange.
Select Qualifed Intermediary to handle all monies from sale of the investment property and for purchasing of new exchange property. Make sure you work with appropriate qualified trusted 1031 exchange professionals because any misteps in the process can make the property inelligable for a 1031 Exchange.
Selecting replacement 1031 Exchange property is your next step in the process. You can select up to three properties within 45 days as replacement properties in your exchange, BUT one of the three must be a) of equal or greater value then the relinquished property, and close within 6 months of the sale of the relinquished property.
To ensure compliance with these rules some real estate investors target a Tenant in Common or TIC property as one of the three identified replacement properties. This is to help ensure that they can a) select a property within 45 days and b) close on that property within 6 months. The TIC property is one with multiple real estate investors who are owners together and allow a property management company to manage the property. It can be used as an "in between" 1031 because if an investor cannot find a suitable investment property that better suits their needs, they can invest in a TIC to meet the timelines in a replacement property. Recall you must identify the replacement property within 45 days and then you must obtain the replacement property within 180 days following the sale of the relinquished property. It is very important to have a Qualified Intermediary pay the closing costs and deliever the deed to you for the replacement property.
It is advisable to work with 1031 exchange professionals to ensure compliance with the specific regulations as defined in the IRS code. Working with an expert can offer you a strategic tax plan and ensure compliance wilth the specific regulations of the IRS code.
Another option is the reverse 1031 Exchange, but these are complex, more costly and harder to execute. Basically a reverse 1031 Exchange is when you buy the replacement property first and then sell the relinquished property, thus the term "Reverse" 1031 Exchange.