Would you sell your investment property if you didn’t have to pay taxes on the capital gains?
Many owners are already familiar with the advantages and requirements involved in utilizing the IRS 1031 exchange program in order to defer the tax on the transaction:
· The value of the property (or properties) acquired must equal or exceed that of the property relinquished. In other words, a debt must be replaced and all equity (cash) must be reinvested in the replacement property.
· The exchanger must identify the property(s) to be acquired 45 days after the closing of the relinquished property.
· The exchanger must then acquire one of the properties identified within 180 days of the close of sale, or the tax filing deadline (including extensions) for the year in which the relinquished property closed, whichever is sooner. These deadlines cannot be extended.
· A qualified intermediary is needed to hold the funds.

There are many more rules involved, but the above summarize the most important ones.

What if you can’t find a suitable replacement property within the timeframe stated above? Maybe you don’t want the problems of maintaining your beach house any longer? You may want to consider placing some or all of your funds into a TIC program for a holding period until you find a suitable replacement property.
Would you like positive cash flow, some depreciation, and appreciation potential, depending upon the length of time you kept the property?

In 2002 the IRS clarified and allowed for a new class of the 1031 exchange, Tenants-in-Common (TIC) properties. These are generally larger real estate parcels in the 10-100 million dollar range that are divided into multiple tenant-in-common owners. They are typically office buildings, shopping malls, or apartment complexes, and are already leased and professionally managed at the time of purchase, with rent escalations usually in place.

The IRS has put in place several rules that significantly benefit the investor and differentiate TIC properties from REIT’s and partnerships. All profits go to the TIC owners. The owner gets actual deeded ownership. This interest is exchangeable via a 1031 tax deferred exchange. Upon death your heirs would receive a stepped up basis and the capital gains tax will be completely avoided.

For more comprehensive information on 1031 Tax Deferred Exchange and Tenants-in-Common contact your Carolina Designs REALTOR®. The above information was compiled from a handout by Dr. Gary Ackerman, United Securities Alliance, Glen Allen, VA