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Tenancy in Common Explained

Tenancy in Common (TIC) is a way for two or more individuals to have an undivided fractional ownership interest in a single piece of real property. With a TIC, each owner has individual rights and obligations related to the property. These rights equal the proportionate share of the owner’s interest. Tenancy in Common is a popular way for individuals with shared interests outside of property ownership to continue that relationship with their joint property ownership. Having an ownership interest in a TIC gives an investor the right to his or her proportionate share of net income, tax benefits and appreciation. The TIC owner is treated similarly to a fee simple […]

How to Make Your Primary Residence Eligible For a 1031 Exchange

Section 1031 of the IRS code explicitly prohibits private residences from eligibility for a 1031 exchange. So what can you do if your home has extensive equity and you want to avoid capital gains tax liability when you sell? One option is, of course, to use the 250,000/500,000 exclusion permitted by tax code on the sale of your primary residence. But that still leaves any equity above and beyond that amount (after you’ve subtracted the original purchase price and any capital improvements) exposed to capital gains taxes in the year of the sale. If you want to ensure tax deferral of all capital gains taxes, then a bit of foresight […]

What Can (and Can’t) Be Traded In A 1031 Exchange

Although the provisions of Section 1031 have been around for a long time, there are still investors who are not familiar with the tax savings offered by this powerful piece of tax code. And even for those investors who have heard of a 1031 exchange, their knowledge rarely goes beyond the basics. In fact, many investors believe (wrongly) that only real property can be exchanged in these transactions. This is not true. While there are some business or investment interests that are excluded from section 1031 qualification, there are many types of “property” that can be exchanged. Understanding what can (and can’t) be traded opens up a world of possibilities […]

Adding the Right Professional to Your Team

Financial planners, Certified Divorce Financial Advisors and CPAs all face a recurring issue – a client who wants or need to diversify their portfolio beyond the professionals’ existing capabilities. As more and more individuals take a more active interest in controlling their financial investments, this scenario plays out with increasing frequency. When your client starts this conversation with you, what is the right response? For too many financial professionals, the fear of losing their client has them extending themselves into areas where they don’t have the requisite expertise. Or worse, trying to steer their clients into unsuitable holdings, simply to keep them on board. But what if there was a […]

1031 Exchanges – What’s With All The Rules?

When it comes to completing a successful 1031 exchange, it is all about following the rules. Rules related to timing are the biggies, followed closely by naming replacement property. In the eyes of the IRS, missing a single deadline – by even one day – is enough to invalidate the entire exchange. Likewise, failing to property name the replacement property ultimately acquired is additional grounds to veto the exchange and cause capital gains taxes to be immediately due. To avoid application of this rather draconian approach, every investor must understand these basic 1031 exchange rules. 45-Day Rule for Identification. This rule requires that the investor either close on the purchase […]

Financing Essentials of a Delaware Statutory Trust

Unlike other methods of real estate investing, a Delaware Statutory Trust (DST) offers several unique benefits with regards to financing and liability with regards to investors. First, use of a DST greatly simplifies the process for financing securitized real estate, and usually entitles investors to very competitive interest rates often reserved only for large financial institutions. How is this possible? Because with a DST, the trust itself is the sole borrower and owns 100% of the fee interest in the property. This eliminates the need to vet every individual borrower, making a DST far more appealing to lenders than, say, a Tenancy in Common where up to 35 individual owners […]

What is a Reverse Exchange and How Does One Work?

Real estate investors know about the powerful tax-deferral opportunities of a 1031 exchange. By selling existing investment or business property and then replacing it with “like kind” property, capital gains tax can be deferred (in some cases indefinitely). But what happens when an investor finds the ideal replacement property before they sell their existing investment property? Do they have to pass up the opportunity to acquire the perfect new investment simply because they haven’t sold their unwanted property? No. An investor simply needs to understand and implement a “reverse exchange.” A reverse exchange allows an investor to acquire replacement property before selling relinquished property. Of course, the IRS imposes strict […]

Using A 1031 Exchange To Replace A Vacation Home

For many individuals, the sale and replacement of a second home will incur capital gains taxes. The good news is that, if appropriate rules are followed, these homeowners can benefit from the tax-deferral benefit of a 1031 exchange. The rules governing such transactions are explained in Revenue Procedure 2008-16. Here the IRS offers clarification to a previously confusing section of 1031 code. As of March 10, 2008, vacation home exchanges will qualify if all of the following are met: Relinquished Property The owner must have held the vacation home for at least 24 months prior to the exchange. For each 12-month period preceding the exchange, the vacation home must have […]

Three “Must Know” Things About A 1031 Exchange

A 1031 exchange can be a powerful tax deferral tool for real estate investors. However, to ensure the validity of any exchange in the eyes of the IRS, three straightforward rules must be followed. The margin for error is not kind, either. The smallest misstep can result in the IRS invalidating the entire transaction and demanding immediate payment of capital gains tax. Like-Kind Exchange In every circumstance, the property the investor is selling and buying must be “like-kind.” Note that this does not mean identical. Rather, “like-kind” is a federal tax phrase that relates to the nature of the real estate while it is held by the investor. The key […]

Due Diligence Is Not Optional When It Comes to TICs and DSTs

Every investor wants to be certain that they are putting their money into solid investments, especially when it comes to complex real estate transactions. Due diligence – the analysis of the circumstances surrounding an investment – and full disclosure of all material facts is an essential component of the investment process. Especially when it comes to Tenancies in Common (TIC) and Delaware Statutory Trusts (DST). Every responsible investor should make sure they complete this very important process before entering into a transaction. Sponsor Analysis – Be sure to scrutinize the experience, financial condition, performance record and backgrounds of the key players involved in the sponsorship. Structural Review – Enlist the […]