Happy…….tax day??? Ok,ok – poor attempt at humor. Hope everyone is square with their tax status, and since it’s tax time, let’s go ahead and look at some tax strategies, such as the 1031 Tax Exchange program:
Part 1
A long-established section in the federal tax code, section 1031, allows real estate investors to sell property that has been held for investment purposes and defer capital gains and depreciation recapture taxes if they acquire “like-kind” exchange property of equal or greater value and reinvest all of their equity. Since the mid-1990s, many investors have experienced the benefit of reinvesting their equity into investment property interests structured as Tenancy-in-Common (TIC). TIC owners hold an undivided fractional ownership interest in investment property evidenced by a deed of trust.
TIC, also known as Co-ownership of Real Estate (CORE), enables an investor to participate in the ownership of institutional-grade, professionally managed investment properties. The investor’s equity can be diversified amongst several different properties, geographic markets and real estate companies, potentially increasing both the value and safety of the real estate investment. TIC/CORE investments are designed to offer preservation of capital, predictable cash flow and long-term appreciation in institutional-quality investment property assets that benefit from greater economies of scale.
With its features and benefits, TIC/CORE is an increasingly popular 1031 exchange option for many real estate investors. However, 1031 exchanges and TIC/CORE transactions are very complicated, with both tax and legal issues topping the list of potential pitfalls. It is therefore essential that investors be knowledgeable about what to look for in a quality advisor. Financial advisors are required by securities law to be properly licensed in order to consult clients regarding TIC/CORE transactions and other investment interests in real estate. Financial advisors should hold both Series 7 and Series 63 securities licenses to qualify them as knowledgeable, well-rounded consultants in the investment process. It is essential that they have experience in the commercial real estate business, in addition to an understanding of personal investment objectives and client suitability issues.
But perhaps the most important component to look for in a TIC financial advisor is their intimate, trusted and deeply rooted relationships with key real estate companies. This attribute is critical to their ability to provide the best opportunities for their clients.
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