Question: In a nutshell, what is TIC (Tenants-in-Common) ownership? Answer: TIC ownership combined with NNN leases provide the real estate buyer with the advantages of ownership in a larger property, revenue and annual depreciation benefits without many of the day-to-day management problems associated with individually-owned rental property.
Question: What purchase amounts are ordinarily required for 1031 TIC ownership? Answer: Revenue Procedure 2002-22 issued by the IRS allows up to 35 TIC (Tenants-in-Common) owners in any one property. Minimum purchase requirements are structured to meet this limitation and can range as low as $150,000 equity. The typical entrance in whole commercial building begins at $1 million, but through TIC ownership, the average person is able to enjoy ownership in an institutional-type property with a minimum purchase. Besides reliable income and growth potential, these properties are able to attract tenants with greater financial strength and stability than possible for the individual landlord.
Question: What happens if fail to close on my 1031 exchange? Answer: You will have to pay your capital gains taxes. Failure to close is the top reason clients reveal as to why they pay capital gains. By identifying a TIC property, you can reduce your potential tax risk, and avoid a failed closing. If you fail to close on other identified properties, you are able to move all your proceeds into the TIC (Tenants-in-Common) property you identified.
Question: Is there any liability exposure associated with TIC ownership? Answer: The mortgages on most of the TIC properties offered by Spectrus Group are non-recourse. The TIC debt structure generally allows for the debt financing to assumed. Assumption usually occurs without the need for qualification or loan assumption fees.
Question: What if I want to sell my TIC ownership? Answer: On a decision requiring unanimous vote, such as a sale decision, a 60% - 75% (depending on your TIC agreement) vote by the TIC owners will be sufficient to initiate the impasse resolution procedure. This procedure allows the TIC owners with 60% - 75% (depending on your TIC agreement) or more of the property to make an offer to buyout the dissenting owner with 25% or less of the property. The dissenting TIC owners can either: (1) accept this offer, (2) buy out the 75% TIC owners at the same price per percentage ownership, or (3) change their dissenting vote to a consenting vote.
Question: What happens to my TIC ownership if I die? Answer. Your ownership interest will pass to your heirs pursuant to your will just like any other asset. Currently, the estate tax code provides that they will also receive a stepped-up tax basis to fair-market value, but you should check with your CPA or tax adviser because not all circumstances are alike. The income taxes which were deferred because of your 1031 exchange are potentially forgiven forever.
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