Tenant In Common & 1031 Tax Deferred Exchanges
Helping investors understand TICs & 1031 Tax Deferred Exchanges
Beat 1031 Tax Deferred Exchange Deadlines With a TIC
November 7th, 2006 by Troy
October 31st, 2006
SAUSALITO, Calif., Oct. 24 /PRNewswire/ — Income property owners have wonderful opportunities to legally defer all gains taxes on property sales by using 1031 exchanges. But if you miss exchange deadlines, you’ll find yourself with a substantial tax bill.
Section 1031 of the IRS code lets you sell your property and buy a new one without paying taxes as long as:
- You identify your successor property within 45 days after sale.
- You complete the purchase of successor property within 180 days after sale.
- Your mortgage on the successor property is not less than the one you paid off.
- The successor property is of a like kind.
- A qualified intermediary handles the exchange funds.
There are pitfalls in meeting the 2 key deadlines:
- Deadline to identify successor property Unless you have the cash to buy the successor property without first selling, you can’t commit to a new purchase until closing. You have only 45 days after closing to identify a new property. Result: poor bargaining power and the likelihood of buying an unprofitable building, just to avoid all those taxes.
- Deadline to purchase successor property Locating the property, examining it, arranging financing, and closing the escrow can take over 5 months. There’s pressure to be less diligent, just so your closing date won’t slip.
A good strategy for beating these traps is to trade your original property, tax deferred, into a “tenants-in-common” (TIC) ownership position in a property co-owned with other investors. You can opt for a property with a diversified tenant roster, current cash flow, and upside potential. You are on title as an owner, the property is professionally managed, and the group ownership adds financial strength to the deal. The evaluation of a TIC opportunity can be done even before you list your property for sale. When it comes time to close, you have an exchange property waiting.
Here are tips for evaluating a private Tenants-in-Common property:
- Verify actual past results
- Check professional references
- Speak with current investors
- Review the investment analysis and plan
- Visit the property
- Meet the management personally
For more information about TIC investments, visit www.drakepropertygroup.com [http://www.drakepropertygroup.com]
Source: PR Newswire
Publication Date: October 24, 2006