Conceptual Constraints on 1031 TIC Exchanges

To Provide Tax-Deferred Products, 1031 Central Must Adhere to Some Basic Principals:

• Holding Period: Properties acquired with the intent to flip, by sale or exchange, or by contribution to capital, cannot be exchanged in a like kind exchange
  Solution: Neither the statute nor the IRS states a requirement regarding hold time, however attorneys suggest a year is a good rule of thumb. This comes into play when you are thinking about doing a 1031 exchange on your primary residence (link) or generally if you're thinking of moving in and out of exchange properties quickly.

• TIC vs. Securities: TICs are considered “securities” under federal securities law, but it is critical that TIC interests sold to 1031 buyers not be categorized as “other securities” or “evidences of … interest” under federal tax law. TIC must be fractional ownerships of real property and must enjoy both the benefits and risks of owning property. Thus, some of the 1031-721/ UpREIT exchanges (link) which allow investors to put their shares back to TIC syndicators/ REITs may not be in the spirit of this concept.
  
• TIC vs. Partnerships: TIC can not function as a partnership. Thus, syndicators must find ways around issues such as central management agreements, right of first refusal, etc.
  

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