How to avoid taxes after selling property

Buying a house or some sort of property is one of the best investment decisions anyone can make given that - historically at least - return on property has been very favourable, even after discounting inflation. Only stockmarket returns have exceeded that of property.

However, in today's real estate market, with sky-high prices, it can be difficult to buy an ideal property because of the prices; but also, the rental income might not justify paying such exorbitant prices.

What is a tenant-in-common program?

This is where a Tenant-in-Common program comes in. It is ideal for those wishing to benefit from appreciating property values and an income stream such as rent, without actually having to mange the property yourself.

The main purpose of a Tenant-in-common program is to defer taxes after the sale of a property. Under Section 1031 of the Internal Revenue Code, a person is required to reinvest the proceeds after selling a property to be able to defer taxation. They are usually required to pay taxes at the long-term capital gain rate.

The tenant in common program allows investors to buy into commercial real estate through fractional ownership scheme. This is much like replicating stock ownership but with much more direct involvement in the operational aspects of managing the investment.

Some benefits of a tenant-in-common program:

• It's a liquid investment and the person can usually sell their stake immediately.

• There is often a very stringent time period in which someone is required to buy another property after selling his or her older property to defer taxation. The period of 45 days is very strict, especially for those who are not buying and selling property on a regular basis, so a tenant-in-common (TIC) can be very useful way to invest to defer taxation.

• Another way a tenant-in-common program benefits the investor is the fact the it

• To be able to defer taxation, it is required that the value of the new property is more, or at least, equal to the value of the property just sold. This can be difficult to achieve, especially bearing in mind the very short time period by which the money must be used to buy the property.

Some points to remember before investing in a tenant-in-common program:

Minimum investment required to invest in Tenant n-common - This will vary depending on the company offering the TIC and the type of properties the TIC is investing in.

Realise that a tenant-in-common will vary in length – The holding period varies from one TIC to another. It is your duty to be fully aware of duration of the TIC. Remember, an investor will only realise his/her share of the profits upon selling their share of the investment.

Type of property the tenant-in-common invests in – Again, these vary from one TIC to another, but in general, they are usually operational properties that provide an income through cash flow generated from rent. Te tenant-in-common holder will also benefit from the rise in value of the property, if prices increase in value, of course.

How to invest in a tenant-in-common program

• Typically, a TIC investment is only open to people that have high income - in excess of $100,000.

• Find a real estate brokerage firm that provides tenant-in-common programs for people to invest in.

• Just like buying a home outright, there is no guarantee that a TIC will make a profit. You may end up realising losses as well as gains, if you bail out at the wrong time.

Although a TIC does not replicate buying a full property in your name, it is primarily for those who are looking to defer taxation and for people who may not have the time to devote time dealing with owning and managing an individual property.