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Jenner & Block Partner Arnold S. Harrison discussed some of the emerging tax and legal issues related to the tenancy-in-common (TIC) industry at 4th Annual Chicago Real Estate Investment Conference, held on June 20th.
According to the panelists, TICs, a form of real estate title agreement in which two or more people have an equal interest in the property, may be “improving with age” since the IRS issued Revenue Procedure 2002-22. This revenue procedure provides standards for determining whether real estate owned by multiple individuals constitutes a tenancy in common or a partnership. This revenue procedure sets forth the IRS standards for tenant-in-common structures to qualify for a tax deferred exchange treatment under Internal Revenue Code Section 1031.
The panelists agreed that the sale of fractionalized interests in real estate has increased since the issuance of this revenue procedure, in part due to the sale of these interests being offered to Section 1031 investors who want to execute tax-deferred exchanges.
In addition, the panelists emphasized the importance of conducting due-diligence during the transactional process. In their experience, they said finding a qualified intermediary, examining the insurance certificate and reviewing monthly statements are essential to successful TIC transactions. The panel also discussed the importance of understanding the track record of the investor and examining the underlying property.
In addition to Mr. Harrison, Jack Bixler, TIC Properties, served as moderator for the event and Miriam Golden, Chicago Deferred Exchange and William McCann, Spectrus Real Estate Group, served as panelists for the event.