How TIC Interest Can Become Certified as Co-ownership Interest
TIC (tenancy-in-common) ownership is on the rise nowadays a more people realize its advantages. According to professionals such as 1031 Exchange Place, this investment has a low down payment and is easily transferable. Despite the many tax benefits associated with this form of property ownership, it requires tact.
You can defer the gain recognition in the investment of TIC properties by exchanging them for similar ones. There was an issue with the co-ownership interest. To address this, the IRS issued some requirements for TIC interest to qualify as co-ownership interest.
No Entity Treatment
This guideline is contained in section 6.03. It states that a co-ownership cannot carry out its business or file taxes as a business entity. Individual owners of a co-ownership are also barred from holding themselves as shareholders or partners.
Number of Co-owners
Section 6.02 limits the number of co-owners a property can have. The number of co-owners of this property should not exceed thirty-five persons. However, the internal revenue code recognizes spouses and all people who inherit co-ownership interest as single persons.
Under section 6.05, the IRS states that co-owners preserve the right to approve any hired manager and the lease, disposition, or sale of the property. The property’s co-owners must unanimously agree upon these actions. For other activities that affect the property, the co-owners will be tied by the vote of those who hold at least 50% of property interest.
A 1031 tax exchange sounds lucrative for investors who want to invest in replacement properties. Still, any mistake with the given requirements will significantly mar your investment and sometimes draw IRS penalties. The best way to navigate the investment is by getting guidance from a 1031 tax exchange expert.