A tenant in common 1031 exchange can be even more complicated than your typical starker exchange. This is because of the aspect of the tenant in common means that there are more people involved in the overall sale, tax responsibilities, and eventual purchase of the new investment or commercial property. While it’s not impossible to complete a transaction and keep the tax-deferred in this situation, you will want to make sure that you are working with a qualified intermediary that is familiar with this process and can help make sure that everything is being done in a timely and correct manner according to the IRC and all the IRS rules involved with a transaction of this nature.
To give an idea of why a tenant in common can add complication to this sort of real estate transaction it’s important take a look at what exactly it means. Essentially tenants in common is a form of ownership when it comes to a real estate asset where two or more people have an undivided or fractional interest in the asset. In this situation the individual’s interests do not have to be equal, but all people own the property together as if they were one person.
An example of this would be a situation of a husband and wife purchasing a rental property together with another friend. In this situation the friend could have a 50% ownership stake, while the husband and wife each have 25% ownership stake, so that altogether they own 100% of the property.
As you can imagine making sure that everyone works together to meet the time frames and paperwork required for 1031 TIC exchanges can be difficult unless a truly qualified intermediary, who is familiar with tenant in common situations, is used to guide you through the process. This is why in any like kind exchange is important to make sure that you have a good third party representative to keep everyone on track.
Don’t be afraid of attempting to complete a tenant in common 1031 exchange, just make sure that you are ready to handle the complications in a timely manner so that your transaction will be successful.
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