Risks Arise as Interest Grows in
TIC Exchanges
In a typical 1031 exchange, property owners defer capital-gains taxes on the
sale of an asset by immediately buying a similar property. Tenant-in-common
(TIC) programs are a form of 1031 exchanges in which sellers can acquire
ownership stakes in properties, rather than buying the whole asset, in order
to qualify for this deferment. Most who go this route either acquire a
shopping center or an office complex. At tax time, they then supply
information from a deed showing their percentage of ownership so that they
aren't responsible for paying a capital-gains tax on the earlier
transaction.
Some naysayers, though, argue that TICs' benefits may be diluted somewhat by
the new tax law's reduction of capital-gains taxes from 20 percent to 15
percent. Although TIC programs are good at identifying properties that
require little daily oversight, they also can take control away from the
seller with management duties left to the sponsor that sells the stakes in
the property. To make the whole process easier, some industry officials are
hoping to establish a TIC association.
"We have to establish a code of ethics, a code of conduct to make sure we're
meeting all our fiduciary and legal responsibilities," Argus Realty
Investors LP President Timothy E. Snodgrass.
Source: Wall Street Journal
(06/25/03); Smith, Ray A.
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