Problems Associated With Taking Back Paper

When you sell property and agree to accept a note as part of the purchase price, you may not be able to defer all capital gain taxes when performing a 1031 exchange of the property. That is unless a few scenarios are available. reports:

If the investor has the cash available, the investor may buy the note from the QI for its fair market value at the time of the sale of the relinquished property. The sale of the note to the investor occurs during the exchange period, thus allowing the QI to use the note proceeds towards the replacement property purchase. The obstacle with this approach is obviously that the investor must have the cash available to buy the note.

TIC Demand Hots Up As Aging Baby Boomers Spearhead Change

Tenants in Common 1031 exchanges seem to have become the preserve of today’s aging baby boomer generation. In 2002, when Revenue Procedure 2002-22 was issued, 10 to 15 sponsors sold $356 million in TIC investments. In 2005, a survey of the members of the Tenant-In-Common Organization, a trade organization of composed of TIC sponsors, estimates that over $4 billion in TIC investments will be sold in 2005 by 65 sponsors. reports:

The tricky part of exchanging into a TIC interest is the timing. Under the deferred exchange rules, the taxpayer must identify replacement property within 45 days and close within 180 days. With the TIC industry so hot, many TIC deals sell out immediately. Working with a qualified intermediary that has numerous contacts with TIC brokers can help to ensure that the taxpayer gets into the investment.