TENANTS IN COMMON (TIC)
TIC 1031 Exchange Properties
TIC 1031 Exchange Information
Tenants in Common 1031 Exchange Overview
In a Tenants in Common (TIC) structure an investor owns an undivided fractional interest in real property and shares pro-rata in all the expenses and income of the property as well as depreciation benefits. TIC real estate investors receive a recorded deed for their fractional interests in the property. 1031 exchange investors may find suitable replacement property in the form of TIC ownership. And TIC offerings are often pre-arranged with financing allowing for a simpler and faster closing of 1031 exchange replacement property.
Click here to contact a Corcapa 1031 Advisor for more information on Tenants in Common Investments/TIC 1031 Exchanges.
What is Tenants in Common (TIC) / TIC 1031 Exchange Properties?
Tenants in Common (TIC) became popular in 2002 after the IRS issues Revenue Ruling 2002-22 governing the needed structure of TIC real estate. In a TIC structure an investor owns an undivided fractional interest in real property and shares pro-rata in all the expenses and income of the property as well as depreciation benefits. TIC investors receive a recorded deed for their fractional interests in the property. 1031 exchange investors may find suitable replacement property in the form of TIC ownership. And Tenants in Common offerings are often pre-arranged with financing allowing for a simpler and faster closing of 1031 exchange replacement property. The acronym “TIC”, which stands for tenancy in common and tenants in common, refers to arrangements under which two or more people co-own a parcel of real estate without a “right of survivorship”. This type of co-ownership allows each co-owner to choose who will inherit his/her ownership interest upon death. By contrast, the type of co-ownership called “joint tenancy” requires that each co-owner’s interest pass to the other co-owners upon death. The broader terms “fractional ownership”, “shared ownership, and “co-ownership” encompass all arrangements involving two or more owners, including tenancy in common and joint tenancy.
Tenants in Common (TIC) FAQs
What are the deadline dates to complete a successful 1031 Exchange?
To accomplish a full tax deferral on the sale of rental property you must follow the IRS Section 1031 Guidelines. Corcapa 1031 Advisors recommends the following:
- Be in communication with your Corcapa 1031 Advisor representative well ahead of your proposed relinquished property closing so we can begin to research and identify potential replacement property.
- Be sure to select and assign a Qualified Intermediary “QI” or Accommodator to receive the sale proceeds from escrow. Corcapa can recommend QIs for you. Be sure to research the financial backing of QIs before selecting them. Be especially careful to NOT take personal receipt of the funds or your exchange will be invalidated.
- From the day you close your relinquished property, you will have 45 days to identify your replacement property(ies) and can use one of three rules: The three property ID rule, the 200% rule, or the 95% rule.
- You have an additional 135 days from the end of the 45 day period in which to close on your replacement property(ies).
- Additionally, for full tax deferral you must purchase equal or greater purchase price, equal or greater debt and reinvest all cash.
Are you an Accommodator?
While Corcapa is happy to refer you to accommodators, we cannot provide accommodator/QI services. We specialize in the replacement properties for our client’s 1031 exchanges.
Will a DST or TIC Qualify for a 1031 Exchange?
The Revenue Ruling 2004-86 issued by the IRS governs how the DST should be structured so that the purchase of a DST will fit within the guidelines of a 1031 exchange. Corcapa works with sponsors of DST offering who structure the offerings with a legal opinion for 1031 exchange purchases. We recommend that you discuss this with your tax and legal advisors and we will provide all documentation to these advisors to use in analyzing your replacement property options. Further, we are not aware of any of our clients to have ever had an IRS tax issue with the purchase of a DST investment.
Potential Benefits of 1031 TIC (Tenants in Common) Investments:
- Potentially Greater Cash Flow: Most TICs have a projected cash flow based on the anticipated rental income less expenses. This could be a higher net cash flow than you are currently receiving on your rental property. As with all real estate the income cannot be guaranteed because the rental income and expenses can increase or decrease unexpectedly.
- Access to Institutional Grade properties which are typically larger commercial properties that previously required significant capital to purchase.
- Diversification: Investors can select multiple TIC properties as part of their 1031 exchange allowing diversification of asset classes, cities and level of needed non-recourse debt.
- TICs have minimum investments often as low as $100,000 – $300,000 of equity allowing investors to diversify. If you require a lower investment amount, let your Corcapa 1031 Exchange representative know and we may be able to negotiate a reduction in certain circumstances.
- Non-Recourse Loans – Virtually all the loans within the TICs that are approved by Primex are non-recourse which means the investor does not personally guarantee them.
- Easier access to financing for investors needing debt on their replacement property.
- Investors like the pre-arranged TIC programs so that some of their 1031 risk is removed.
Potential Risks of 1031 TIC (Tenants in Common):
General real estate risks and market also apply to TICs. *Please see the risk section of DSTs for additional information on risks.
- Illiquidity: A TIC interest is an illiquid investment and there is no current active secondary market for selling your interest.
- While TIC owners have voting rights on major activities such as leasing, sales and refinance, there is dependence on the performance of the sponsor.
- Fees and Expenses of each offering should be carefully evaluated. Multiple owner offerings typically have additional expenses to owning real estate on your own and these fees should be weighed against specific capital gains tax liability. All investors are encouraged to have their tax and legal counsel advise them on taxes including any federal and state capital gains taxes, depreciation recapture and the recent 3.8% Medicare tax which could be applicable.
- TICs are structured according the Revenue Procedure 2002-22. Corcapa and Primex typically work with sponsors and properties that have “should” level tax opinions regarding 1031 exchange tax compliance but its possible the IRS would rule unfavorably on a TIC offering and this could result in back taxes and immediate tax liability.
- Conflicts of interest may affect a TIC investment and should be evaluated.
- Past performance of investments is not indicative of future performance and doesn’t ensure earnings or appreciation. Principal loss or reduction could occur based on real estate performance and market conditions.
Request TIC 1031 Exchange Property Listings
To Receive a Listing of TIC Investments in the form of 1031 Exchange Properties Please Fill Out This Form