A tenant-in-common investment (TIC) and a 1031 exchange are two separate investment strategies, though they are often used together to achieve capital gains deferment through a passive real estate investment. For the purpose of this discussion, we will define a 1031 TIC exchange as a 1031 exchange that is achieved through a tenant-in-common investment.

A 1031 exchange refers to Internal Revenue Code 1031, allowing investors to defer capital gains tax by exchanging properties (relinquishing one investment property and acquiring another). Investors may choose the investment property best suited to their financial goals: office complexes, industrial buildings, retail centers and even vacant land. While the type of property can be customized, the timeframes allowed by the IRS are strict. Investors have 45 days from the sale of the relinquished property to supply the IRS with a list of properties they are considering for their exchange. The investor is not obligated to acquire all of the identified properties, but is limited to those properties when the exchange is implemented. Within 180 days of relinquishing the original property, the investor must close on the exchange property in order to defer capital gains tax. If the property is not closed by the 180th day, the exchange has failed and taxes must be paid.

While investors are permitted to choose from a wide range of investment properties, increasing numbers are opting for a tenant-in-common investment. The reasons for the popularity of this fractional ownership strategy are clear: individual investors have access to institutional-quality real estate and can shed daily property management responsibilities.

A 1031 TIC exchange combines the benefits of both investment strategies and is well suited to the investor who wishes to defer payment on capital gains while enjoying a steady income from institutional-quality real estate.

For more information on the 1031 TIC exchange, please click here.