TIC-UP: A strategy to protect real estate capital gains from immediate taxation while utilizing a structure that may allow future ownership in a real estate fund or partnership.

Tenant In Common structured properties are eligible for a TIC-UP which is a process in which the TIC property is acquired by a limited partnership or other similar ownership structure. 

In a TIC-UP the “real estate” interest is converted into ownership shares in a limited partnership which is the entity that owns the real estate.

The procedure and items of interest to investors in this conversion of real estate ownership into equity share ownership are:

1. The investor utilizes a 1031 tax deferred exchange to avoid capital gains and depreciation recapture taxes.
2. The investor purchases a matching tenant in common interest(replacement property) in a property that has characteristics  which make it an attractive for acquisition for a limited partnership.
3. If the TIC property is acquired the investor utilizes IRS Section 721 to defer taxation and recapture.
4. Upon utilization of Section 721 the ownership interest becomes a  share interest and loses any further 1031 exchange eligibilities.  The interest is no longer “real estate” for the purposes of Section 1031 deferrals.  The investor now  owns shares in the limited partnership that owns the real estate.
5. The investor potentially acquires shares in a real estate partnership, or fund, without losing a substantial amount of capital to taxation.
6. Real Estate Partnerships can be an attractive way to invest in real estate.
7. The previous tax deferral from previous 1031 exchanges is protected by IRS Section 721.
8. The shares are not eligible for 1031 exchange tax deferral.
9. The restrictions on owning just one property in the owning structure no longer apply which allows the investor to own a portion of a portfolio of properties.
10. The control moves from the investors to the management of the partnership.
11. The partnership can spread risk and returns over a larger base of properties.
12. The investor loses the ability to diversify into separate TIC ownership positions in separate, distinct, properties.
13. The investors no longer select the separate investment properties.
14. Cost Recovery, (Depreciation) tax deferral benefits continue.

A TIC-UP can be attractive but careful consideration should be made of the quality of the limited partnership and the expertise of the general partner.  Close examination of the overall property portfolio is also recommended.

S-Net-Invest offer opportunities to own in TIC-UP potential properties.  It is recommended that investors arrange for an evaluation of the investors specific financial goals.  Sourcenet Financial provides evaluations at no cost and the investor incurs no obligation.

One caveat is that a tenant in common property may not be pre-obligated to convert into a partnership.  Control must remain with the TIC investors until they decide to convert. Typically upon conversion individual TIC owners can opt out and receive cash or enter into another 1031 exchange with the proceeds.

SOURCENET FINANCIAL CORPORATION DOES NOT, WILL NOT AND CAN NOT PROVIDE TAX INFORMATION.  INVESTORS MUST LOOK TO THEIR TAX ADVISORS AND ATTORNEYS. INFORMATION PROVIDED IS ILLUSTRATIVE IN NATURE AND CAN ONLY SUGGEST POTENTIAL INVESTMENT STRATEGIES. SOURCENET FINANCIAL IS A BROKER IN THE BUSINESS OF SELLING REAL ESTATE.