As a Qualified Intermediary for 1031 Exchange transactions, one of the concerns that we often hear about from Investors when structuring 1031 Exchange transactions is the difficulty in locating, identifying and ultimately acquiring suitable like-kind replacement properties within the required 1031 Exchange deadlines.
Investors often rush into an acquisition of a like-kind replacement property that is not particularly well suited for their investment goals and objectives when faced with a rapidly approaching 1031 exchange deadline. Although the income tax benefits of completing a 1031 Exchange transaction are important, the financial and economic aspects and benefits of a particular like-kind replacement property should not be ignored simply because of the 1031 Exchange identification and completion requirements and deadlines. You should let the economics of the like-kind replacement property guide your decision.
You should also carefully consider and evaluate the merits of fractional ownership interests in real estate such as Tenant-In-Common or TIC Investment Property interests, Delaware Statutory Trusts or DSTs, other forms of co-ownership interests in real estate (CORE), when looking for suitable like-kind replacement properties for your 1031 Exchange, especially before rushing into an acquisition that may not make financial and economic sense.
Simply stated, fractional, or co-ownership, interests in real estate allows you to acquire, together with other investors, a larger, potentially more stable, secure and profitable real property asset than what you could have acquired and afforded on your own. In addition, by acquiring tenant-in-common investment property ownership interests in a number of different investment properties, you can achieve greater diversification and improved overall quality in your real estate investment portfolio.
The Treasury Department issued Revenue Procedure 2002-22 in March of 2002, which established guidelines pursuant to which the Internal Revenue Service (IRS) would consider issuing private letter rulings (PLRs) on TIC investment property ownership interests acquired as like-kind replacement properties as part of a 1031 Exchange transaction.
It is important to note that these guidelines do not offer "safe harbor" or "guaranteed" structures for TIC investment properties, but they do provide guidance for TIC Brokers and TIC Sponsors to use in structuring and distributing (selling) TIC investment property interests.
There are many TIC Brokers and TIC Sponsors that can provide you with guidance and advice regarding TIC investment property ownership interests. TIC Brokers typically work with numerous TIC Sponsors and can better assist you in evaluating the various options and help you in making an educated and informed decision as to whether the TIC investment property ownership interest is right for you.
Read Evaluating Co-Ownership (CORE) or Tenant-In-Common (TIC) interests in Real Estate for more complete information on evaluating TIC investment property interests for your 1031 Exchange transaction.
You should always consult with your legal, tax and financial advisors prior to entering into any 1031 Exchange or TIC investment property transaction, including the review of any Private Placement Memorandums (PPMs) on TIC property interests.