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TIC 1031 Exchange Eligible vs DST

TIC 1031 Exchange Eligible vs DST (Delaware Statutory Trust) 

In this article we want to cover if a TIC is 1031 exchange eligible, what a TIC (Tenants in Common) is, the pros and cons of a TIC, and some alternatives to a TIC. If you are selling an investment property and looking to do a 1031 exchange to defer your capital gains tax, then you are most likely exploring all options. Most real estate investors are familiar with a TIC or tenants in common. With all the recent tax changes, you may want to reaffirm if a TIC 1031 exchange eligible. Currently, a TIC is 1031 exchange eligible. Now you may want to explore if a TIC is the best route for you in your 1031 exchange to defer your capital gains tax. There are a lot of differences between buying a physical replacement property in your 1031 exchange, a TIC, or a DST (Delaware Statutory Trust). We will discuss all of these options in this article, and you will need to determine what the best course of action is best for you in your 1031 exchange. After reading this article, if you have more questions about if a  TIC is 1031 exchange eligible or the differences between a TIC vs DST then you can fill out the form below, or call our office directly at 805-583-2720 and we will be happy to answer any questions you have! 

Sample TIC Investment Property - Single Tennant 

What Is A TIC (Tenants In Common) 

A TIC or Tenants in Common is a real estate investment opportunity that is 1031 exchange eligible. A TIC can only have up to 35 investors in the real estate opportunity. The real estate investment properties are usually smaller to allow investors to buy into the property. However, because there can only be up to 35 investors, the minimum investments could be higher than a DST
(Delaware Statutory Trust) . A TIC vs DST allows real estate investors looking to do a 1031 exchange can invest a minimum of $100,000 into a Delaware Statutory Trust. A TIC vs DST could mean investors would have to invest a far higher amount into a TIC property because of the limited amount of investors allowed in a TIC. For some real estate investors, a TIC investment in a 1031 exchange may be too high based on their sale price. In a TIC investment, you are not a passive investor. When it comes to the decision making in a TIC, all investors must unanimously vote for decision making. If the TIC is considering selling the investment property, all 35 investors must agree to sell. If 1 investor decides to vote no to sell the property, they cannot sell the property. This is one of the downfalls of a TIC investment. When you invest into a TIC property, you assume all liability of the property and the financing. This puts a lot of liability and risk on the investor. In order to try and property you as an investor, you are required to form an LLC and maintain books and records for tax reporting. This is an added costs most investors do not consider when investing into a TIC property. A TIC investment property is not required to register with the SEC and FINRA and does not provide "safe harbor" protection for the investor. A TIC investment may have high costs associated with the investment. A TIC property does not have a quick close, and is not guaranteed. It could be a 30,60,90 day close when it comes to financing and acquiring the property. If you are in your 45 day identification period, this could pose a risk that the TIC property never closes escrow and you are required to take your proceeds in cash and pay the capital gains tax. In a TIC investment property, there could be an investor cash call where more funds are required to maintain or do repairs on the property. In short, the TIC investment structure carries higher risk, more management, but could pay higher cash on cash returns. If you are considering a TIC vs DST and have questions about the two different real estate investment vehicles, and would like to discuss it with one of our representatives, we would be happy to do so. If you would like to schedule a consultation with one of our representatives, you can fill out the form below or call our office directly at 805-583-2720. 

Sample Delaware Statutory Trust Multifamily Investment Property 

TIC vs DST (Delaware Statutory Trust) 

Based on the information above about what is a TIC, you may comes to the conclusion that a TIC investment isn't the best option for your 1031 exchange funds. You may want to know what alternatives to TIC are out there when it comes to your 1031 exchange. You can purchase a physical property in a 1031 exchange but you will have to manage the property. If you do not want to manage another physical property then you may want to explore other options in your 1031 exchange. The only other option to do a tax deferred 1031 exchange is a DST or Delaware Statutory Trust. If you are not familiar of what a Delaware Statutory Trust is, we will give you a brief overview of what a Delaware Statuary Trust is and the differences between a DST vs TIC. A TIC vs DST (Delaware Statutory Trust) still allows you to do a tax deferred 1031 exchange. In a TIC vs DST (Delaware Statutory Trust) you can invest into a property that has already been acquired by a Delaware Statutory Trust company. You do not have to worry about closing escrow on the property, because the Delaware Statutory Trust company has already purchased, financed, or all cash, and closed escrow on the property when you can invest your 1031 exchange proceeds into it. In a DST vs TIC (Delaware Statutory Trust), you receive passive monthly income and you do not have to manage the property. In a TIC vs DST (Delaware Statutory Trust) you still get to participate in the appreciation when the property is sold. In a TIC vs DST (Delaware Statutory Trust) there are no voting rights for investors, and the Delaware Statutory Trust sponsor is responsible for making the best decision on behalf of all investors in the Delaware Statutory Trust portfolio. In a TIC vs DST (Delaware Statutory Trust) structure, you are not required to setup an LLC and can run your income through your reporting tax ID on the relinquished property. TIC vs DST (Delaware Statutory Trust) allows the DST investor to participate in the depreciation of the Delaware Statuary Trust property giving you deductions on your tax return. In short, TIC vs DST (Delaware Statutory Trust) may carry less risk in a DST, but you will sacrifice smaller cash on cash returns. If you feel a Delaware Statutory Trust investment may fit better in your 1031 exchange, we can help! To learn more about the Delaware Statutory Trust in your 1031 exchange, please fill out the form below or call our office directly at 805-583-2720 and we will schedule a consolation call.   

Sample Senior Living Delaware Statutory Trust Investment Property 

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Delaware Statutory Trust Team 


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