1031 tax deferred Tenant in Common exchanges
A 1031 Exchange is a long standing but little known provision defined by IRS code 1031 that allows a property owner to exchange one real estate asset solely for another "like kind" asset and defer capital gains taxes. To the extent that there is non like kind property or cash received in the exchange there can be a tax. The investor uses up to 100% of the "value" of one property "to acquire" the new property.
The IRS Code Section 1031 does not apply to exchanges of inventory, bonds, notes, personal residence, Limited Partnership interests, Partnership interests, REIT Shares, other securities or evidence of indebtedness or certain other assets.
A type of 1031 exchange is an exchange into Tenant in Common ownership, which is a form of real estate ownership in which two or more persons have an undivided, fractional interest in the asset, where ownership shares are not required to be equal, and where ownership interests can be inherited.
1031 Exchanges and Tenant in Common transactions are complex and require the involvement of independent tax and legal counsel. To qualify as a 1031 tax-deferred exchange many parties use a Qualified Intermediary (QI), an independent third party, at time of closing to facilitate the exchange so that the seller doesn't actually receive taxable proceeds from the sale of the property. The most common objectives for 1031 exchanges include tax strategy, greater leverage, diversification by asset class and geographic area, improved cash flow and/or property consolidation.