When people ponder the tax implications of the sale of property for the first time they start to be interested in the different types of tax shelters. It may be a bit overwhelming to learn it all, but the key is that you do not need to learn it all. It is certainly all worth it once you see how much money you did not have to pay in taxes that you would have otherwise without this tax shelter.
The TIC 1031 exchange is one method of a tax shelter that can help in many cases. The letters TIC stand for tenant in common. In other words, it is one piece of undivided property that is treated by the government as one parcel but is owned by two or more individuals or entities
The smaller individual investor tends to prefer a TIC investment because it allows them to invest in larger property that they may not otherwise be able to invest in. This is a great way for them to get in the game on what they see as a wise investment but that they cannot afford to do all themselves.
When it comes to a Tic investment, there are some advantages to consider. For one, it allows a lot greater equity power for the small investor. Two, it makes it possible to split the investment funds up geographically, which can be a big benefit and really pay off.
However, as with all good things there are risks. For example, this currently works under the current tax code, but that could change and that would leave you in a sticky situation. Another thing to think about is that you are invested with others, making it impossible to liquidate your investment in any reasonable time.
No matter how the 1031 exchange is applied, it can be a life saver to those who are simply trying to switch their investment from one property to another. It is also the legal way to essentially tell the IRS that you are not gaining anything and should not pay taxes on the sale of the investment because you are just reinvesting back into another property.
The law requires anyone who is going to use the 1031 exchange to shelter their money from being taxed to use a 3rd party provider that is certified to complete those transactions. This 3rd party provider is generally responsible for holding the money from the sale of the original property until it is reinvested into another. While some do not like that they must use a 3rd party, it is very helpful in avoiding mistakes that could cost you the whole deal and cause you to have to pay the taxes.
The 1031 tax exchange is names after the tax code line that refers to this type of tax shelter. It is certainly a great way to defer taxes on property that you are simply reinvesting, but it is not to hide any gains from the sale of property. Use it correctly and you will have no problems.
A TIC 1031 exchange is a nice way for small investors to shelter their investment money from taxes. However, all kinds of a 1031 exchange are good for investors.
categories: tic 1031 exchange,tax laws,tax shelter,taxes,investments