Considerations Within Sponsored Tenants-in-Common Like-Kind Exchange Programs

Hopson, James F.; Hopson, Patricia D.
February 2008
Journal of Financial Planning;Feb2008, Vol. 21 Issue 2, p48
Academic Journal
• While like-kind real estate exchanges under Internal Revenue Code Section 1031 have been around since 1921, the use of the tenants-in-common (TIC) technique for these exchanges was just approved in April 2002. This article provides guidance in selecting a TIC sponsor, but also alerts advisors and investors to problems within the industry. • To successfully defer taxes using a like-kind exchange, the seller must identify and close on replacement property within 180 days of the sale. The seller has three options for identifying replacement property. The TIC technique makes the task of finding suitable replacement property easier. • The tenants-in-common technique allows taxpayers to qualify for like-kind exchanges through co-ownership of property or even multiple properties. The co-ownership is typically handled through a TIC sponsor. • Advantages of TICs include the ability to invest in institutional grade property, flexibility to invest the exact amount needed, and the ability to diversify more easily. Disadvantages include additional fees in acquiring and selling the TIC property, lack of independent control, and often restrictive financing terms. • TIC owners usually use either a property management company or lease to the TIC sponsor under a master lease structure. Under a master lease, however, the investors ability to recover their investment in an economic downturn is limited. • Because of the risks involved in relying on a third party in TIC transactions, Standard & Poor's has established a ranking service of TIC sponsors.


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