interests to outsiders, but they must be allowed to sell or mortgage their interests after offering to the other tenants in common.

5 Management agreements cannot be for more than one year.

6 Any sale, leasing or mortgaging of the whole property must be by unanimous consent of the tenants in common.

7 Profits and losses must be shared according to fractional ownership.

8 Tenants in common are limited to investment activity not engaged in business.

LIMITING LIABILITYAND THE SINGLE-MEMBER LLC But what about the limited liability afforded by LLCs? Tenant-in-common ownership, by itself, does NOT separate the risk of property ownership and does NOT protect the other assets of the tenants-in-common. Again, the IRS has rescued the situation be declaring that single-member LLCs are “disregarded entities” for tax purposes. By disregarded, they mean that a single-member LLC need not have an EIN nor does it need to file a separate tax return! Instead, the tax incidents of any real property owner by a single-member LLC are reported directly on the individual tax return of the member. By combining ownership of property as a sin- gle-member LLC with a tenant in common agreement, you achieve maximum 1031 exchangeability with limited liability. CONCLUSION When multiple owners join forces to buy real estate, they often overlook their 1031 exit strategy. To achieve limited liability with 1031 exchangeability, real property invest- ments can be structured with several single-member LLCs as tenants in common operating under a tenants in common agreement that complies with Rev, Proc. 2002-22. •


Steven Hickox has been a licensed attorney in Colorado since 1981. He is the co-owner and founder of In business since 1994, 1031x. com has handled more than $1 billion in 1031 exchanges. Contact him at or 1-888-899-1031.

80 | think realty magazine | mar :: apr 2016

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