TIC 1031 Exchanges ? What Are They?

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 tax shelter of a TIC 1031 exchange is one that a lot of people find helpful. In case you are wondering, TIC stands for tenant in common. In essence, this refers to two or more people owning the same piece of property.

TICS are beneficial to the smaller, individual investor. They offer a chance for that type of investor to get in on larger investments that they would not be able to otherwise.

When someone decides to get into a TIC property there are a lot of advantages. For example in a 1031 TIC there is the opportunity to have a greater investment and greater equity power because of the tax that is deferred. There is also the ability to break up one large investment property into many small ones and geographically diversify your investment.

There are also risks involved with a TIC, like any other investment type. For example, it works as the tax code reads now, but that could change at any point and that may leave you scrambling to figure out how to deal with that. It is also always a concern when you put yourself in a situation where you are reliant on others.

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.

When doing this type of activity to shelter the money from taxes, it is required by law that you use a 3rd party qualified person or company to handle the money in the interim between selling the first property and reinvesting it into another. This does cost a little bit, but it is not only required but can be very helpful to make sure that you do not make any large mistakes

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.

A TIC 1031 exchange is a great way for small investors to shelter their investment money from taxes. However, all types of a 1031 exchange are beneficial for investors.