When you think about real estate and all of the taxes that can be associated with it, you soon start to take an interest in tax shelters and how to use them. There are many things to learn, but if you would like to keep more of your money and not pay taxes that you do not need to, then you need to learn these things.
One of the methods of a tax shelter is done through a TIC 1031 exchange. TIC is an acronym for tenants in common. In other words, this is when someone owns a piece of one real whole property with at least one other person.
The smaller individual investor tends to prefer a TIC investment because it allows them to invest in larger property that they may not otherwise be able to invest in. This is a great way for them to get in the game on what they see as a wise investment but that they cannot afford to do all themselves.
There are many advantages to a TIC property. One advantage is that a TIC 1031 gives the small guy greater investment power. Also, it gives an investor and opportunity to split their investment geographically.
However, as with all investments, there are some risks with TIC investments. One risk is that the tax code that allows this to work and shelter money can change and cause some real problems for the investors. Another risk is not being able to get out of the investment quickly. If a need arises that you need the money out of your investment, it is not easy to do in this type of investment because you are dealing with other people that have to sign off on it as well.
The 1031 exchange program, in either the traditional sense or in a TIC 1031 can be a great benefit and money saver for investors. This is a great way for you to clarify to the government that you are simply reinvesting your money from one thing to another and therefore really did not make any money from which to pay taxes from.
When doing this type of activity to shelter the money from taxes, it is required by law that you use a 3rd party qualified person or company to handle the money in the interim between selling the first property and reinvesting it into another. This does cost a little bit, but it is not only required but can be very helpful to make sure that you do not make any large mistakes
The tax code line number 1031 is all about this type of tax shelter and that is where it got its name. The 1031 exchange has been a great way and a favorite among some to defer the taxes from the sell on property. However, it should not be used to try to cheat the government. If you do this, it could cost you a lot more in the long run.
A TIC 1031 exchange is a nice way for small investors to shelter their investment money from unnecessary taxes. However, all kinds of a 1031 exchange are beneficial for investors.
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