A sometimes forgotten structure for real estate ownership is Tenant-In-Common (TIC). This form of ownership is commonly used by unmarried couples buying a home together when the owners have different percentages of ownership. However, it certainly isn’t limited to unmarried couples. In many circumstances it can be the preferred way for two or more business partners to take deed of the property. The deed lists specific ownership percentages for each co-tenant.
In fact, TIC can be the preferred way to hold ownership of a commercial property such as a small to midsized apartment building.
Besides not requiring a marital relationship and allowing two or more owners, there are other characteristics of TIC that work well for many business arrangements.
There are often cost savings not available in other business arrangements. You may use an attorney but you don’t need an attorney to enter into a TIC. The TIC is not registered with any government body other than the agency recording the deed. A formal recorded agreement is not required although it is often used. Accounting costs associated with partnerships, trusts, and corporation tax returns are not needed.
If you participate as an active investor, any losses you have can qualify as tax write-offs against your salary, dividends, interest, and other income. No real estate or securities license is required. For passive investors, the Tax Cuts and Jobs Act (TCJA) allows a 20% deduction for qualified business income (QBI). It’s worth noting, the TCJA did not make a distinction between active and passive investors when it comes to the QBI deduction. You may need help from a tax professional to sort this out.
There are several other advantages as well as possible pitfalls depending on your business situation. And there can be complexities. As in most business cases, because the laws governing TICs vary from state to state, before you make any decision on your apartment building purchase, it’s a good idea to meet with your attorney and tax advisor.
Do you have experience with TIC? Please comment with your thoughts and experiences.
Also, our weekly Ask Brian column welcomes questions from readers of all experience levels with residential real estate. Please email your questions, inquiries, or article ideas to [email protected].