The Guidelines of a TIC: Agreement
July 25, 2008
A TIC: Agreement, or Tenants in Common Agreement, is an agreement that is used to establish the rights of people who own property together but who are not related by marriage. Any people who own property together but who are unmarried are considered as being tenants in common, and the TIC: Agreement is then used to cover them and to consider an entity, the property, that they own together.
There are certain issues that should be covered by this agreement, including the division of property into individual and group shares, formulas for determining each owners’ monthly payment in advance and periodically adjusting the amount, and provisions defining when a default has occurred and to then describe remedies to solve the problem.
Advantages
There are many advantages that people sharing property together holds from having a TIC: Agreement set into place. For one, ownership of a TIC: Agreement allows the investor to own a fractional interest in a large, institutional-grade investment property.
One of the major advantages of this agreement lies in the potential it offers for tax-free exchange treatment. A taxpayer can use a TIC investment as either relinquished property or replacement property in a qualifying tax-free exchange.
There is also the option of reselling interest in a TIC investment, because significant value could result from this decision. It is important, especially for anyone not completely educated on the agreement speak to a tax consultant or other knowledgeable professional in this area who will be able to help them decide whether or not this is going to be a smart move for them at that point.
Problems
There are also a few problems that come with the TIC: Agreement however, and these problems can easily become very complex. One of the biggest problems is that this agreement does not cover current issues, and even worse, if the persons involved do not have any agreement at all then neither will be covered and serious liabilities and expenses may occur as a result.
By being aware of both the pros and cons of this agreement before getting into it, people will be more prepared and also more understanding on what they have available to them. In summary however, these investments do offer many huge advantages, which should definitely be taken into consideration by potential investors.
As long as you also consider the practical issues that are involved here and ensure that the TIC will not be treated as a partnership solely for tax purposes, then all in all you will be making a wise decision.
Kathryn R. Landry is a business writer for TIC Advisors, Inc . A company that can give you the most complete information on a 1031 exchange or TIC properties nationwide.
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