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The TIC 1031 Exchange And What It Is.
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 TIC investment strategy is one that is preferred by the small investor. This is primarily because it affords them opportunities that they would otherwise not be able to get into. For example, investing a much larger property that they believe to be a good investment but for which they cannot do on their own.
There are many advantages to a TIC property. One advantage is that a TIC 1031 gives the small guy greater investment power. Also, it gives an investor and opportunity to split their investment geographically.
However, as with all investments, there are some risks with TIC investments. One risk is that the tax code that allows this to work and shelter money can change and cause some real problems for the investors. Another risk is not being able to get out of the investment quickly. If a need arises that you need the money out of your investment, it is not easy to do in this type of investment because you are dealing with other people that have to sign off on it as well.
The 1031 exchange can be a big help to those who simply want to change where they have their money invested. The taxes can scare people into staying in their current investments when they do not know about the tax shelters.
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 name for the 1031 exchange comes from the tax code line number. It has been around for awhile and has been used successfully by many people. However, this is not a loop in the law and should not be used to try to hide anything from the IRS.
About the Author A TIC 1031 exchange is a great way for small investors to protect their investment money from taxes. However, all kinds of a 1031 exchange are beneficial for investors.
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