NestEgg Investing: 1031 Tenants in Common Exchanges

Good 1031 TIC Exchange Industry Articles

In order to avoid clutter, I set up a new blog on "1031 Industry News" so that you can keep up with the latest offerings and industry trends.  The blog is: 

http://www.1031research.com/ [link]

I'll also try to trackback good articles below. To see these articles, click on the Trackback icon at the bottom of this post:

1990's-Present 1031 Exchange IRS Rulings

1990’s
-Revenue Ruling 1990-34 (Direct Deeding of Replacement Property)

2000
-Revenue Procedure 2000-37 (Parking Arrangements for reverse 1031 exchange and build-to-suit 1031 exchange structures)

2002
-Revenue Procedure 2002-22 (Tenant-In-Common Program)
-Revenue Procedure 2002-69 (Classification of entities: Husband and wife: Community property: Separate entity: Partnership: Disregarded entity)

2003
-Revenue Procedure 2003-39 (LKE Program 1031 Exchanges)

2004
-Revenue Procedure 2004-51 (Improvements on land previously owned by taxpayer, amends Revenue Procedure 2000-37)
-Revenue Ruling 2004-77 (Classification of organizations for Federal tax purposes)

2005
-Revenue Procedure 2005-14 (tax exclusion available for profit on the sale of a personal residence with the tax deferral available with a Section 1031 "like kind" exchange of a rental property)

Conceptual Constraints on 1031 TIC Exchanges

To Provide Tax-Deferred Products, 1031 Central Must Adhere to Some Basic Principals:

• Holding Period: Properties acquired with the intent to flip, by sale or exchange, or by contribution to capital, cannot be exchanged in a like kind exchange
  Solution: Neither the statute nor the IRS states a requirement regarding hold time, however attorneys suggest a year is a good rule of thumb. This comes into play when you are thinking about doing a 1031 exchange on your primary residence (link) or generally if you're thinking of moving in and out of exchange properties quickly.

• TIC vs. Securities: TICs are considered “securities” under federal securities law, but it is critical that TIC interests sold to 1031 buyers not be categorized as “other securities” or “evidences of … interest” under federal tax law. TIC must be fractional ownerships of real property and must enjoy both the benefits and risks of owning property. Thus, some of the 1031-721/ UpREIT exchanges (link) which allow investors to put their shares back to TIC syndicators/ REITs may not be in the spirit of this concept.
  
• TIC vs. Partnerships: TIC can not function as a partnership. Thus, syndicators must find ways around issues such as central management agreements, right of first refusal, etc.
  

1031 TIC Exchanges Legal Overview

The new 1031 options allow non-tax benefits such as geographic diversity, zero management, etc, but at its core, the 1031 exchange is a tax strategy.  Thus, it behooves a personal investor to try to understand the governing tax laws and as much as possible get comfortable with the future direction.  Thus, we've tried to provide some information here.  Neither of us are licensed lawyers, and you should not consider this legal counsel.  However, here's our (non-professional, not licensed understanding).  As with anything else on this website, consult a tax lawyer or CPA.

I've broken it up into sections:

1)  1031 Basics (Link)

2)  What you can and can't do (Link)

3) Conceptual constraints on 1031 transactions (Link)

4) Directions in 1031 rulings (Link) The evolution of 1031 rulings since the 1990s

5) Hints at the future in 1031 rulings (Link Coming Soon)