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In a typical transaction, the property owner is taxed on any gain realized from the sale. However, through a Section 1031 Exchange, the tax on the gain is deferred until some future date.
Section 1031 of the Internal Revenue Code provides 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. A tax-deferred exchange is a method by which a property owner trades one or more relinquished properties for one or more replacement properties of "like-kind", while deferring the payment of federal income taxes and some state taxes on the transaction.
The theory behind Section 1031 is that when a property owner has reinvested the sale proceeds into another property, the economic gain has not been realized in a way that generates funds to pay any tax. In other words, the taxpayer's investment is still the same, only the form has changed (e.g. vacant land exchanged for apartment building). Therefore, it would be unfair to force the taxpayer to pay tax on a "paper" gain.
The like-kind exchange under Section 1031 is tax-deferred, not tax-free. When the replacement property is ultimately sold (not as part of another exchange), the original deferred gain, plus any additional gain realized since the purchase of the replacement property, is subject to tax.
We recommend consulting with your tax advisor regarding the advantages of a 1031 exchange.
I also can highly recommend the following Exchange Facilitator: Lynne Bagley at Orexco www.orexco1031.com
Tenant in Common (TIC) Investments
A tenant-in-common investment is a structure of property
ownership where multiple investors pool their funds to
own one entire property. As a TIC owner, an investor has an undivided fractional interest in one property and shares in their portion of the net income, tax shelters and appreciation.Each TIC owner receives a separate property deed and title insurance for their portion in the property investment. This gives the investor the same rights of ownership that a single owner would enjoy. Because TIC offerings are often “packaged” with management and financing in place, TICs may offer a more simplified solution for the 1031 investor searching for replacement property.
Real Estate or Securities
• For 1031 exchange purposes TICs are fractionalized
interest and deeded real estate. Co-ownership of real estate in the form of TICs can be structured other than a partnership.
The IRS Revenue Ruling 2002-22 provides further guidance in this area.
• Securities include investment contracts. An investment contract is a financial arrangement where investors contribute capital with the expectation of profit and rely on the efforts of a sponsor to oversee the investment process.
• “The fact that TIC interests typically are investment contracts under securities laws does not inherently disqualify them as property that may be exchanged under Section 1031.”1 TICs are structured as both real estate and securities. TICs are fractionalized ownership in real estate and investment contracts as securities.TIC Advantages
• TIC investments provide simplicity by eliminating active management headaches. Individuals who are ready to relinquish the day-to-day burdens of being a landlord, or who own land and would like an income producing property, may benefit from TIC investments. TIC programs provide a “mailbox management” investment that may save time and money.
• TIC ownership allows an investor the ability to diversify their 1031 exchange into more than one property, and to own potentially larger property(ies).
• Cash flow from operations is generally paid monthly and is tax-sheltered via depreciation-pass-through and interest deductions (in many cases a portion of the investor’s net income is tax sheltered.)
• A TIC investor may experience appreciation over the time a property is held.
• Minimum equity requirements as low as $200,000 allow an individual to invest in larger, possibly institutional-grade properties that they otherwise could not purchase.TIC Risks
• TIC interests are direct investments in real estate and
are subject to all risks of owning, operating and disposing of real estate.
• Results from investing in real estate vary through cyclical economic times.
• The cost to acquire a TIC interest may be more than purchasing a property by the whole due to additional expenses of making the property available to multiple co-owners and marketing it in the form of a private security offering.
• A TIC interest is an investment in real estate and is an illiquid investment. There is no established secondary market for the resale of TIC interests.
• TIC investments may not be suitable for all 1031 exchange investors. | 
