Real estate has been and will continue to be a great investment, and an incredible builder of wealth for many Americans. Low interest rates have created a very favorable environment for investors, and the increased demand for these investments has created quite a market. Hopefully, you have invested wisely and now have a highly appreciated asset that provides income, tax benefits, and diversification for your portfolio.

Now may be the time to start thinking about the future of this investment as well as your own retirement. Many investors have a large property with a single tenant, or have all of their properties in one market sector, such as multi-family. What if that tenant suddenly became insolvent, or that sector took a nosedive on you? What if something happened to a tenant that exposed you to liability and/or recourse from a lender?

You’ve undoubtedly thought about this scenario before, but thought your options to remedy them were few or non-existent. One of the major advantages of Tenants-in-Common TIC investing is the ability to move from a recourse loan to non-recourse financing on your primary asset. Simply put, non-recourse debt means you cannot lose more money than you have invested, and you don’t have to give a personal guaranty. This should be a huge consideration for an investor that is looking for risk reduction. Think of it in investing terms, where an investor with a shorter time frame for retirement will move stocks from growth to income. This "asset allocation" can also be done with real estate, and if 1031 exchange is utilized, it can be done tax free.

If you’ve held your asset for a long time, you will be subject to a 25% depreciation recapture. With TICs and 1031 exchange, you not only defer that charge as well, you get a new depreciation schedule that will provide tax shelter for the monthly payments. 

For estate planning, TICs can be a great tool. An investor seeking to combine TIC investments with 1031 exchange can effectively defer up to 100% of any capital gains taxes and may benefit further from tax advantages on their income. It’s quite possible that your heirs don’t have the real estate experience or know how that you have acquired over the years. A big TIC advantage is that professional management is built into the deal, meaning your management duties are removed, and all you have to do is go to the mailbox each month to get a check. The best part is that your heirs will get a "stepped-up" basis and the capital gains you have been deferring all of these years will simply vanish.  They will also get a new depreciation schedule, again helping to shelter their monthly income, and their capital gains will be much smaller and manageable thanks to the stepped up basis, which will be the fair market value of the TIC asset at the time they inherit it.  The sale of the TIC asset will be handled by professionals, and your heirs will get to participate in any appreciation that the property has encountered. 

Think of Tenant-in-Common investments as a way to alleviate management headaches, remove the threat of recourse from a lender, defer capital gains indefinitely, to diversify your portfolio, and to give your heirs an asset they can manage with no real estate experience. 

Here is a much more in-depth article about this from a Tax CPA 

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