Real estate investors can obtain significant tax benefits by using a popular asset depreciation technique called cost segregation. Using this process, purchasers view a real estate acquisition as not only that of the building and land, but also as tangible personal property and land improvements.
Continue reading “The Tax Benefits of Cost Segregation in Real Estate”
A Delaware Statutory Trust (“DST”) is a separate legal entity created as a trust under the laws of Delaware in which each owner has a “beneficial interest” in the DST for federal income tax purposes and is treated as owning an undivided fractional interest in the property.
Continue reading “Is a Delaware Statutory Trust Right for You?”
Tenant-in-common ownership, sometimes called tenancy-in-common, is a method of holding title to property involving multiple owners. When a tenancy-in-common arrangement is created, each individual owner, called a “co-tenant” or “co-owner,” owns an undivided interest in the property.
A typical tenant-in-common (“TIC”) interest involves a number of parties, generally unknown to each other, who each own an undivided tenancy-in-common interest in real property.
There can be any number of co-owners. Ownership of a TIC allows the investor to own a fractional interest in a property that is typically investment-grade and professionally managed.
One advantage of TIC investment is the potential for tax-free exchange treatment. In 2002, the IRS issued Revenue Procedure 2002-22, which states that a taxpayer can use a TIC investment, if properly structured, as either relinquished property or replacement property in a qualifying like-kind exchange.
(I covered like-kind exchanges in my previous post, “Understanding IRC Code Section 1031 and Why You Should Care.”)
The relationship among TIC owners is generally controlled by a tenancy-in-common agreement (“TIC Agreement”). Decisions to sell, borrow, or lease a property, or hire property management, are typically controlled by the TIC Agreement.
There are other benefits to TIC ownership, including professional property management, diversification, appreciation, and predictable cash flow. Investors may counter that they can receive these benefits in a partnership structure; however, a partnership interest is considered personal property and cannot be exchanged. (The Internal Revenue Code specifically prohibits the exchange of partnership interests.) However, an LLC or partnership can do a 1031 exchange on the entity level. This means the partnership relinquishes the property and the partnership purchases a replacement property.
If you are buying a property with another person or persons, KRS CPAs can help you set up a tenancy in common. Give us a call at 201-655-7411 or email SFilip@KRScpas.com.
If you think this is one of those dry topics about taxes, think again. It’s important information for anyone selling a commercial real estate property who cares about being protected from capital gains taxes and growing their portfolio.
Continue reading “Understanding IRC Code Section 1031 and Why You Should Care”
