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Frequently Asked Questions (FAQs)
What is a 1031 Exchange?
A 1031 tax-deferred exchange preserves equity and may indefinitely defer capital gains taxes, provided you comply with strict IRS guidelines.
What is Tenant-in-Common Ownership (also known as Undivided Fractional Interest)?
The purchase of a tenant in common (or undivided fractional interest) structure allows investors to purchase an interest in a real estate asset, in some cases larger than they could obtain individually. The investor acquires a percentage ownership (title and deed) and may also receive passive rental income while receiving the tax benefits of traditional real estate. The investors own and control the properties, not a third party. TIC ownership provides investors with the first ever means for ownership diversity, both in location and type, of their real estate portfolio.
Unlike partnership real estate, TIC ownership entitles each owner to the same ownership rights regardless of the equity invested. This element of the investment structure puts no individual owner (or group of owners) in direct control of the property over any other investor(s). As with any type of investment real estate, the value of a fractional interest typically increases annually due to escalations inherent in most tenant leases.
What is depreciation recapture?
An IRS section 1031 real estate exchange is simply a method by which a real property owner disposes of one property and acquires another without having to pay capital gains tax on the transaction. In addition, there is a 25% depreciation recapture. This can be significant for properties that are fully depreciated. In an ordinary sale transaction, the property owner is taxed on any gain realized by the sale of the property. In a section 1031 exchange, the tax and recapture on the sale are deferred indefinitely.
>>1031s and the IRS
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