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HUNTINGTON BEACH, CA—Setting up a TIC well in advance of making a 1031-exchange transaction will legitimize it as a business decision rather than merely a means to avoid taxation, helping investors avoid red flags to the IRS, speakers at the IMN Multifamily Forum here said last week. Speakers on the panel “Tax Planning, Tax Incentives, 1031 Exchanges, IRAs and Other Tax-Advantaged Multifamily Investments in a Trump Environment” explored the best tax options to take in an age when the business rules may be changing at the federal level.

Yunna Weinzerl, a tax partner with Armanino LLP, said real estate is unique in the 1031 exchange world because the exchange is required to be a like/kind one. Mark Weinstein, president of MJW Investments, said when setting up the ownership behind a 1031 exchange, it's smart to do so as a TIC rather than as a partnership because multiple investors can set it up as their own investment, and when you sell, you can each go your separate way. Weinzerl pointed out that in a 1031 exchange, “you can only exchange property, not partnership, so you don't want to set up a partnership.”

She added that the biggest issue in setting up the TIC is time—you don't want to rush to do this before the sale of the property because intent is questioned: are you doing it to avoid paying taxes or for other reasons? “It's all about the intent—you need to prove you had good intent, so do the TIC set-up away from the time of the exchange” to avoid auditing and questioning.