WHAT IS “LIKE-KIND” PROPERTY?

There is some confusion regarding what type of property qualifies for a §1031 tax deferred exchange. The Internal Revenue Code Section 1031 states that “no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held either for productive use in a trade or business or for investment.” “Like-kind” property can include, but is not limited to, any of the following, provided it is held for investment:

* Single Family Rental
* Duplex
* Apartment
* Commercial Property
* Raw Land

For example, raw land can be exchanged for a single-family rental, or apartments or a commercial building. Properties can be exchanged anywhere within the United States. Selling an investment property and trying to do a 1031 exchange to purchase a primary residence does not directly qualify. Taxpayers can do a 1031 exchange into residential income and then convert it at a later date to their primary residence.

IS A TENANT-IN-COMMON RIGHT FOR ALL INVESTORS?

No. It all depends on the investors goals; level of control desired and risk tolerance. One of the key drawbacks tenant-in-common form of ownership is control. While the investor has a proportional vote on key issues they do not have total control. In exchange for this loss of control the investor can more easily diversify and invest in properties that would normally require hands on management with little actual management responsibility. Ultimately the safety and performance of the investor’s money comes down to the quality of the asset being invested in whether owned as a tenant-in-common or a sole ownership property.

WHAT IS A TENANT-IN-COMMON?

Tenants-in-Common (TIC properties) programs, also known as fractional-ownership or co-ownership, provide the ability for investors to buy partial interests in a property as an alternative to having to buy the entire property.

Tenants-in-Common can provide a professionally managed, institutionally funded “turn-key” real estate solution. The risk is the same as any other real estate investment and needs to be completely understood before investing.

For investors not wanting to have other investors involved in the properties they own but are seeking steady cash flow and no management sole ownership net lease properties should be considered.