Tenant in Common (TIC) Owners Beware

Many real estate owners used tenant in common programs as a replacement property in their 1031 exchange. For a variety of reasons, the TIC may not have performed as well as had been anticipated and now the real estate sponsor is hoping to sell the TIC to other investors. When that occurs,the current TIC investors have to decide whether it makes sense to conduct another exchange or receive the proceeds and pay the taxes.

Remember that if you decide to pay taxes, you must use the basis of the original property and not the basis of the replacement property. Even if you take a loss on the TIC, you may still have to pay taxes because there will be a gain using the basis of the original property. In addition, real estate has not performed well and the market still looks tough moving forward.

A possible solution in either case might be a Deferred Sales Trust. The DST can be used as a replacement option and the assets can be invested conservatively according to the wishes of the TIC investor rather than having to invest all proceeds in more real estate. Creative Real Estate Strategies can work with you to determine the wisest course of action when its time to make decisions regarding the potential sale of your TIC.

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