An investment in tenancy in common (TIC) or 1031 exchange property could be a great option for those who want to defer paying taxes on real estate.
However, property owners should consider consultancy services prior to a transaction, especially if they plan to co-buy a TIC property with another person. Other than a TIC asset, non-spouses may choose to co-buy as a joint tenant with right of survivorship.
1031 Exchange Place explains that TIC properties allow owners to have an unequal share of the asset and this is also the most common agreement for people to own a land title even if they are unrelated to each other. In case of death, the person’s beneficiaries would assume their share of the property.
On the other hand, a joint tenancy with right of survivorship requires two people to have a 50/50 share of the property. The share is evenly divided if there are more than two owners. Unlike a TIC asset, a co-owner’s death would allow the others to assume that person’s interest in the property. This usually happens instantly without a court order or probate trial.
If you already own an investment property and you want to explore a 1031 exchange, remember that the qualified assets are generally commercial or industrial properties. Your house won’t qualify for such transactions, so don’t expect tax benefits upon resale.
Since 1031 exchanges let you sell an asset and use the proceeds to buy a new property, you could consider it as a tax-free loan by paying off the levies on a later date. Some of the usual transactions include selling a hotel to buy an office building or a duplex for a TIC investment.
A TIC or 1031 exchange properties are a good strategy on handling capital gains tax, but both require professional advice to make sure you still comply with IRS regulations.