1031/TIC Industry Overview: What is all this 1031, TIC, and LLC stuff?
If you are visiting our website and don’t quite seem to understand what’s going on or what it is exactly that we do, this post is for you.
Sabre Forms and maintains the “Limited Liability Companies” used in a niche real estate industry. Below is a very brief introduction to this industry and an explanation of how our LLC services fit into the picture.
A “1031 exchange” provides a real estate owner with the opportunity to relinquish a property without having to pay capital gains taxes, if he or she acquires a property of like kind according to certain rules.
These rules are laid out in IRC section 1031 (hence “1031 exchange”).
“Tenant-in-Common” references a certain way of taking title to real estate in which multiple owners possess undivided interests in a single property.
In 2002, the IRS declared that Tenant-in-Common properties are valid replacement properties for 1031 exchanges.
Since then, certain real estate companies (called “Sponsors”) have begun purchasing institutional-grade properties in order to enhance their values and resell them to investors as Tenants-in-Common.
“TIC” investments are valuable to real estate owners interested in getting rid of their current properties in exchange for investments that they do not have to manage themselves. TIC properties centralize the resources of their investors so that a property management company can be put in place.
The rules by which TIC properties qualify for 1031 exchanges are laid out in Rev-Proc. 2002-22.
Each investor takes title to his or her replacement property by way of a Limited Liability Company. The investor is the single member of this LLC, and the single purpose of the LLC is to hold his or her title to the TIC interest.
This LLC mitigates the risk of the investor’s entire asset base becoming susceptible to litigation. Usually the LLC’s used in a given TIC property are set up beforehand, as a part of the whole investment package.
TIC Sponsors contract with Sabre to Form these LLC’s and keep them compliant with state law. We focus entirely on the compliance of the LLC’s used in TIC offerings. We streamline all of the LLC Formation and maintenance processes such that a Sponsor company can painlessly integrate our services into its offering and receive a single invoice, and zero headaches.
Tags: 1031 Industry, LLC, REISA, SPE, TIC Industry, TICA
September 18th, 2009 at 8:54 am
[...] Most often “TIC” is used to refer to the Tenant-in-Common investment itself. A TIC Investment is, in essence, a way of owning real estate, sometimes referred to as “fractional ownership”. Under this method of taking title to real property, each investor is a co-owner of the property, owning an “undivided fractional interest” in the whole. A main reason why this kind of investment is popular is that, since it can count as a “replacement property” in a 1031 exchange, it may be used to defer capital gains tax. (More about this here.) [...]
November 22nd, 2009 at 7:51 pm
I’ve been active in taxations for lengthier then I care to admit, both on the private side (all my working lifetime!!) and from a legal stand since satisfying the bar and following up on tax law. I’ve rendered a lot of advice and redressed a lot of wrongs, and I must say that what you’ve put up makes utter sense. Please uphold the good work - the more people know the better they’ll be outfitted to cope with the tax man, and that’s what it’s all about.