This is the third and final installment of a three-part series on Section 1031 like-kind exchanges. Part 1 explained WHY you should consider use of a Section 1031 like-kind exchange when selling commercial or investment real property. Part 2 covered the key rules for HOW to implement a Section 1031 like-kind exchange. This Part 3 covers special issues applicable to a Section 1031 like-kind exchange when a Tenant-In-Common [TIC] interest is being acquired.
THE TIC TRAP
A Section 1031 Exchange Danger Zone
All property lawyers learned in law school that interests in real property can be held in a variety of ways. Common ways to hold title include: as a sole owner, as joint tenants with right of survivorship, as tenants by the entirety, and as tenants in common, among others.
Black’s Law Dictionary defines tenancy in common as: A form of ownership whereby each tenant (i.e. owner) holds an undivided interest in property. Unlike a joint tenancy or a tenancy by the entirety, the interest of a tenant in common does not terminate upon his or her death.
Naturally, then, for investors involved in Section 1031 exchanges, the question will arise as to whether a taxpayer can acquire a TIC Interest as a replacement property in a Section 1031 exchange. On its face, the flexibility this would allow, if permitted, would appear to be exceptional.
Consider a taxpayer who (more…)