1031 Replacement Property Includes:

 

• Traditional Real Estate
• Tenant in Common Investments

There are two types of real estate that can be used in a 1031 exchange – traditional real estate and tenant in common investments. Most of us already know that traditional real estate includes land, houses, multi-unit buildings, commercial properties and basically anything that is involved with land ownership. It is possible to make investments in traditional real estate, and in most cases you will be able to enter into a 1031 real estate exchanges upon the sale which will allow you to defer your capital gains taxes owed upon the sale of the property.

Tenant in common investments are another form of real estate investment that is becoming more popular as individuals want to own high quality commercial real estate investments but lack the money or skills to simply go out and buy A grade commercial real estate deals themselves. A tenant in common real estate venture allows for a group of people (more than three but less than thirty five) to own a piece of real estate together. This is known as tenant in common owernership.

The amount of money you need to invest in a tenant in common investment varies according to the price of the real estate, the number of people you would be sharing the property with, and the amount of the loan (if any).. Tenant in common investments are usually structured as long term investments with loans offered for at least 10 years.

The benefits of a tenant in common investments are that first, you receive monthly cash flow checks and information provided annually on the amount of return you are getting from your investment. Secondly, you have the security of investing in real estate without the hassles of dealing with property tenants, maintenance bills, or other expenses commonly associated with real estate ownership. Thirdly, the system allows you to have an investment in a larger property than you may not have been able to afford on your own.

Whether you have invested in traditional real estate or tenant in common schemes, you still need to follow a set of strict guidelines if you want to participate in the 1031 real estate property exchange scheme. The Section 1031 legislation is a scheme set up by the IRS to allow real estate property investors to defer some or all of their capital gains taxes through allowing for investment in a new but similar property within a certain time frame. To see if your investments might qualify for section 1031 real estate exchange it is advisable to ask a Qualified Intermediary.

The key to Section 1031 exchange replacepment property is that the property has to be considered a workable investment property, and the properties exchanged must be of “like kind”. Generally, primary residences are not considered investment properties under IRS definition, so it is important before investing in real estate that you ascertain just what properties are eligible for Section 1031 consideration.

Understanding the 1031 Exchange Definition: What you need to know