 | Daily Real Estate News | May 24, 2006 |
TICs Can Be Shaky Deals for Investors
Investing in tenancy-in-common deals, or TICS, has become a popular way to avoid paying capital gains taxes. But experts say you should do your homework before putting up money.
A TIC deal allows people to buy a fractional interest in properties. It also benefits sellers of greatly appreciated real estate who want to avoid paying hefty capital gains. By rolling their profits into a TIC, the deal qualifies as a 1031 tax deferred exchange.
The sponsor assembling the TIC deal typically promises participants yearly payouts of around 6 percent of their capital, on par with a REIT's yield. But participants get more control over where they put their money.
The riskiest thing about a TIC is its illiquidity – no established secondary market exists so selling your stake in the property can be a hassle. Also, there are big fees to get involved; TIC sponsors charge an acquisition fee, and broker-dealers collect a percentage of the amount invested. Combined state and federal capital gains taxes can be as high as 25 percent, which is a factor because taxes are merely deferred, not eliminated.
Sources: Forbes, Matthew Swibel (06/05/2006)
Editor's Note: Learn more about tenancy in common at REALTOR.org.
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