Investing in real estate was probably one of the best investment decisions of your life. Now, current vacancies, demanding tenants, and minimal income are several issues that are compelling many investors to seriously consider other alternatives.

A TIC investment is a form of property ownership where multiple investors pool their funds to own an undivided interest in real estate. As a TIC owner, an investor has an undivided fractional interest in one property and shares in a portion of the rental income, costs and deductions, liabilities, and asset appreciation (if any). Each TIC owner receives a separate property deed and title insurance for their portion in the property investment.

The IRS allows you to 1031 exchange your rental property so you can eliminate your day-to-day property management and defer your capital gains taxes. These TIC Properties, allow investors to pool their equity and invest together into institutional grade properties that are capable of attracting national credit rated tenants with long term triple net leases.

TIC ownership allows accredited real estate investors to trade their single family rentals, duplexes, apartment complexes, land, or commercial property for institutional grade properties. These properties are generally stable income producing properties that are able to attract tenants with greater financial strength and stability. The TIC structure as outlined by the IRS, Revenue Procedure 2002-22, allows up to 35 individuals to invest together in a single property with a percentage ownership. Each investor owns a percentage based on their investment. Each investor is entitled to their percentage of any appreciation when the property is sold. Accordingly, this allows an individual investor to participate in the ownership and benefits of a much larger property with national credit rated tenants and professional management without the day-to-day management. National tenants are typically well established business with a long and profitable track record. Better tenants should have a strong credit rating based on a history of paying their bills on time.

Diversification can be achieved by property type (Office, Apartment, Retail, etc) and by geographical area. Instead of owning/renting a single family home to a single tenant, you may own part of a 300 unit class "A" apartment complex that includes professional management.

Exchangeable properties include single family rentals, duplexes, apartment complexes, farms & vacant land, & commercial property. These are generally class "A", stable income producing properties that are able to attract long term tenants with greater financial strength and stability.

Exact dollar matching allows you to invest a specific amount of equity into a TIC property based on your needs. For example, if you receive $220,000 in equity from your relinquished property, you may invest that same amount of $220,000 into your replacement property. To totally defer gains, you must trade up or equal in value and equity. Otherwise, the remaining amount may not be deferred. To continue with this hypothetical illustration, if you receive $220,000 in equity from your relinquished property, and reinvest only $200,000 in a replacement property, the remaining $20,000 may be subject to capital gains tax under Cash Boot.  As with any real estate there are risks that should be considered before making a decision, real estate is illiquid, and there are significant tax risks with any exchange.

Selecting a Qualified Intermediary:  From the simplest exchange to the most complex, we have built our reputation on expertise, financial strength, and customer satisfaction.  If you have any questions, I can be reach at 925-212-1727 or email me at wlam@adelphiretirement.com.

Wai-Yew "Andrew" Lam, President

Adelphi Retirement Management, Inc. / www.AdelphiRetirement.com

If you were to exchange your investment property utilizing the benefits of IRC Section 1031, you can defer the tax on the gain, allowing reinvestment of all your equity in to one or several investment properties. 

In these transactions, 1031 exchange companies (Qualified Intermediaries) are required by the IRS to hold onto the cash proceeds until investors identifies the new replacement property and closes escrow within 180 days.  Since exchange companies are not regulated at both State and Federal level with the exception the State of Nevada, increasingly, there are more and more abuses committed by such companies out there.    

Case in point: 1031 Tax Group of Richmond, VA., which operated in San Jose, California as 1031 Advance, file for bankruptcy in New York City in May of 2007 last year.  Prior to that, it was the subject of investigations by the U.S. Postal Service and U.S. Attorney's Office in Virginia.  Chapter 11 filing in the U.S. Bankruptcy Court in New York said that the 1031 exchange Tax Group owes its 20 largest unsecured creditors $68.9 million and estimated its debt from more than 300 opened exchange contracts at around $151 million.

As an individual investor, the lost could be three fold:

•1.      The lost of your exchange proceeds.

•2.      The tax liability as determined by the IRS.

•3.      A possible law suit against you, if you are already in contract to buy a replacement property.

Therefore, here are some useful guidelines when selecting a Qualified Intermediary.

A: Stability - Does the Accommodator carry enough insurance to protect your exchange proceeds? Typically, exchange companies are required to carry D&O insurance, Fidelity Bond, and FDIC insured.

B: Knowledge and Professionalism - Can you specifically identify the individual responsible for your exchange?  Larger firms may have a number of individuals in different physical locations participating in the preparation of your exchange documents - India?  Will your exchange agreement pass an IRS audit in the next 3 years? 

C: Relevant Experience - Does the accommodator have extensive experience in facilitating different kinds of exchange?  Such as: Delayed, Reverse, Business and Constructions exchange?  How many years have these practitioners been performing these exchanges?  How many transactions, 50 or 5,000?  Did the practitioner passed any IRS audits on these exchanges performed?    

D: Tax Advice - Is the accommodator qualified to give you tax advice when you need it most?  Only exchange companies with an in-house attorneys can legally advise you on your exchange. 

Selecting a Qualified Intermediary:

From the simplest exchange to the most complex, we have built our reputation on expertise, financial strength, and customer satisfaction.  Our company is one of the few that offers FDIC insurance on your exchange proceeds, we also operate nationally.  If you have any questions, I can be reach at 925-212-1727 or email me at wlam@AdelphiRetirement.com.

Wai-Yew "Andrew" Lam, President

Adelphi Retirement Management, Inc. / www.AdelphiRetirement.com

If you were to exchange your property utilizing the benefits of IRC Section 1031, you can defer the tax on the gain, allowing reinvestment of all your equity in to one or several investment properties.  However, great care must be taken when investors tries to complete their exchange by either selling or buying to a related family party. 

Under IRS's definition, related parties include, but not limited to, immediate family members, such as brothers, sisters, spouses, ancestors and lineal descendents.  Related parties do not include stepparents, uncles, aunts, in-laws, cousins, nephews, nieces and ex-spouses.  A corporation, limited liability company or partnership in which more than 50% of the stocks, membership interests or partnership interests, or more than 50% of the capital interest or profits interest is owned by you is also considered to be a related party.

Two (2) Year Holding Requirement

•  If a taxpayer sells relinquished property to a related party the related party must hold that property for two years and the taxpayer must hold his replacement property for two years also after the exchange - see IRC 1031(f)(1). 

•  If a taxpayer buys replacement property from a related party, or a related party owned the replacement property in the preceding two years, the taxpayer must hold the replacement property for two years.  If either party sells within two years period, the gain deferred by the original exchange will be recognized as of the date of the later sale. 

To end abusive basis shifting, Section 1031(f) was added in 1989.  However, eight years later the IRS surprised everyone by enacting Tax Advisory Memorandum 9748006, which stipulated that replacement property could not be purchased from another related party.

To complicate matters, the IRS in 2002, further created Revenue Procedure Ruling 2002-83, which effectively limits related party transaction.  Does this ruling permanently eliminate the purchase of property from a related party?  Probably.  It appears that the IRS practically has eliminated the option of buying replacement property from a related party; essentially, taxpayers only can sell their property to a related party as long as they abide by the two-year holding period. 

Selecting a Qualified Intermediary:

From the simplest exchange to the most complex, we have built our reputation on expertise, financial strength, and customer satisfaction.  Our company is one of the few that offers FDIC insurance on your exchange proceeds, we also operate nationally.  All exchange proceeds are deposited in custodial accounts (interest bearing), and are insured by a Fidelity bond and D&O insurance.  If you have any questions, I can be reach at 925-212-1727 or email me at wlam@AdelphiRetirement.com.

Wai-Yew "Andrew" Lam, President,

Adelphi Retirement Management, Inc. / www.AdelphiRetirement.com

BUSINESS EXCHANGE:

If a owner of a business seeks to dispose of the business, doing so in Section 1031 exchange can result in significant tax savings.  The business owner may want to dispose of one business in one metropolitan market in order to focus on another metropolitan market.  Business types that may be eligible for 1031 exchange are; distributorships and franchises, including cable televisions, beer distributorships, restaurant franchises, gas station franchises, laundry franchises, and Professional services practices are just a few.

The exchange must be broken down into individual exchanges by category of "like-kind" assets.  For example, the value of the office equipment relinquished must be matched against the value of the office equipment received.  Intangible asset are a key aspect of line-of-business exchanges.  These include FCC licenses held by broadcast; subscriber lists held by newspapers, magazines, and cable television franchises, patents, copyrights, technological know-how etc.  IRS regulations provide that goodwill and going-concern value are never like-kind assets.

Basic Exchange Rules

Two basic rules must be met to completely defer income taxes on the gain realized from the sale of the relinquished property:

1. The purchase price of the replacement business must be equal to or greater than the net Sale price of the relinquished business; and
2. All cash or other proceeds received from the sale of the relinquished business must be used to acquire the replacement business.

Exchange Timeline:

The exchanger has up to 180 days from the close of escrow on the sale of the relinquished business to buy the replacement business.  The first 45 days of that period is called the Identification Period.  During the identification period, the investor must identify the replacement business.  The identification must be in writing, signed by the exchanger, and received by the Intermediary within the 45-day period.  Failure to meet the identification deadline or complete the exchange within 180 days results in a failed exchange.

Types of Exchange:

    *    Delayed, Reverse, Construction, Simultaneous, Business &  Personal

Selecting a Qualified Intermediary:

From the simplest exchange to the most complex, we have built our reputation on expertise, financial strength, and customer satisfaction.  Our company is one of the few that offer FDIC insurance on your exchange proceeds, we operate nationally.  All exchange proceeds are deposited in custodial accounts (interest bearing), and are insured by a Fidelity bond and D&O insurance.  If you have any questions, I can be reach at 925-212-1727 or email me at wlam@AdelphiRetirement.com.

Wai-Yew Lam - President

Adelphi Retirement Management, Inc. / www.AdelphiRetirement.com

REVERSE EXCHANGE:

The reverse exchange is a specialized exchange arising from a situation in which an exchanger must acquire the replacement property prior to selling their relinquished property.  Since it is impossible to exchange properties when you own both properties at the same time, a reverse exchange is required if the replacement (purchase) property escrow must close before the relinquished (sale) property escrow closes.

Types of Reverse Exchange Transactions

Type A:            The Intermediary assigns into the purchase contract and takes title to the replacement property.  The exchanger has 180 days from close of escrow on the replacement property to sell the relinquished property in order to complete the exchange.

Type B:            The Intermediary takes title to the relinquished property from the exchanger before the exchanger acquires the new property.  The exchanger has 180 days to sell the relinquished property in order to complete the exchange.

Basic Exchange Rules

Two basic rules must be met to completely defer income taxes on the gain realized from the sale of the relinquished property:

1. The purchase price of the replacement property must be equal to or greater than the net Sale price of the relinquished property; and
2. All cash or other proceeds received from the sale of the relinquished property must be used to acquire the replacement property.

Exchange Timeline:

The exchanger has up to 180 days from the close of escrow on the purchase of the replacement property to sell the relinquished property.  The first 45 days of that period is called the Identification Period.  During the identification period, the investor must identify the relinquished property.  The identification must be in writing, signed by the exchanger, and received by the Intermediary within the 45-day period.  Failure to meet the identification deadline or complete the exchange within 180 days results in a failed exchange.

Types of Exchange:

       *   Delayed, Reverse, Construction, Simultaneous, Business &  Personal

Selecting a Qualified Intermediary:

From the simplest exchange to the most complex, we have built our reputation on expertise, financial strength, and customer satisfaction.  Our company is one of the few that offers FDIC insurance to your entire exchange proceeds, and we operate nationally.  All exchange proceeds are deposited in custodial accounts (interest bearing), and are insured by a Fidelity bond and D&O insurance.  If you have any questions, I can be reach at 925-212-1727 or email me at wlam@AdelphiRetirement.com.

Wai-Yew Lam, President

Adelphi Retirement Management, Inc., / www.AdelphiRetirement.com

DELAYED EXCHANGE:

As an investor in real estate, you understand how important it is to preserve your wealth and assets.  If your investment property has appreciated in value or you have depreciated the property, a sale would require the payment of tax on the capital gain of up to 30% or more (combined federal and state).  However, if you were to exchange your property utilizing the benefits of IRC Section 1031, you can defer the tax on the gain, allowing reinvestment of all your equity.

The 1031 Tax Deferred exchange offers great flexibility to the investor.  You may exchange one property for several others; consolidate several properties into one, eliminate or create joint property ownership, and exchange into property anywhere within the United States.  Under this Internal Revenue Code section, you must require property that is "like-kind", which means other real property held for productive use in a trade or business or for investment.  Example of "like-kind" are; raw land for a retail center, an office building for an apartment building, a single family residence rental for an industrial building etc.

Basic Exchange Rules

Two basic rules must be met to completely defer income taxes on the gain realized from the sale of the relinquished property:

1. The purchase price of the replacement property must be equal to or greater than the net Sale price of the relinquished property; and
2. All cash or other proceeds received from the sale of the relinquished property must be used to acquire the replacement property.

Exchange Timeline:

The exchanger has up to 180 days from the close of escrow on the sale of the relinquished property to buy the replacement property.  The first 45 days of that period is called the Identification Period.  During the identification period, the investor must identify the replacement property.  The identification must be in writing, signed by the exchanger, and received by the Intermediary within the 45-day period.  Failure to meet the identification deadline or complete the exchange within 180 days results in a failed exchange.

Types of Exchange:

     *   Delayed, Reverse, Construction, Simultaneous, Business &  Personal

Selecting a Qualified Intermediary:

From the simplest exchange to the most complex, we have built our reputation on expertise, financial strength, and customer satisfaction.  We are one of the few companies that offers FDIC insurance for your exchange proceeds, operating in all 50 states.  All exchange proceeds are deposited in custodial accounts (interest bearing), and are insured by a Fidelity bond and D&O insurance.  If you have any questions, I can be reach at 925-212-1727 or email me at wlam@AdelphiRetirement.com