by | 25, Sep 2022

The Secret Technique For Deferring Taxes That Nobody Talks About

The 1031 exchange is the golden goose egg of tax deferment… right? I mean it is great, don’t get us wrong. But… it does have its downsides. The 1031 can get kind of complicated, and it can be difficult to find the asset to exchange it.

Well, in today’s episode, we are going to blow the lid off a top-secret tax deferment real estate structure, it’s called the TIC. What exactly is a Tennant In Common?

Find out on this week’s episode of Multifamily Investing Made Simple, In Under 10 Minutes

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Tweetable Quotes:

“Ticktack, a tenant in common, which is the secret weapon that nobody talks about for deferring taxes.” -Anthony Vicino

“Unless someone is bringing a substantial amount of capital, the cost of actually facilitating that, uh, is gonna be prohibitive.” – Dan Krueger

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** Transcripts

Secret Tax

[00:00:00] Anthony: Daniel. This is one of my favorite episodes that we’re ever gonna do. Do you know why we haven’t even done it yet? How’s

[00:00:20] Dan: it your favorite? Well, it could be horrible. That’s

[00:00:23] Anthony: fair. It, I just I’m so optimistic. I’m optimistic about this one because we’ve cook baited. Our listeners, big time, big time. If you’re here listening to this right now, cuz you saw the title and you’re like, oh, I gotta know more.

Um, you’ve been click baed well it’s not click

[00:00:37] Dan: bait. Like it’s gonna end up being like super lame and it sounded awesome. It actually is pretty awesome. So

[00:00:42] Anthony: it is pretty awesome. You maybe have heard about it, but we’re gonna talk about it in context of a deal that we did recently for the listeners who, who are just like binge listening to us and you have, you don’t even look at the titles, like you’re just like gimme more episodes and you’re just like mainlining.

first of all, just thank you. Thank you. [00:01:00] appreciate that. Uh, to make sure you stay hydrated cuz in a lot of episodes, uh, but today’s episode, we’re gonna talk about the secret technique for deferring taxes that nobody talks about secret super secret. Wow. So here’s what’s gonna happen is we’re gonna talk about it and it’s not gonna be a secret anymore.

So we’re gonna let the cat out of the bag and then the jig is up.

[00:01:22] Dan: Well, the jigs that up, you can still do it and it just won’t be a secret.

[00:01:25] Anthony: Well, it’s gonna be like an Irish jig at that point. It’s, we’re all gonna have to line up on stage and like, it’s gonna be very regimented and

[00:01:34] Dan: that’s fine. As long as we get in, uh, defers

[00:01:35] Anthony: some taxes.

I remember when I was young, I thought river dance was gonna be a much bigger thing. Yeah, that, what was that like two years? Yeah. talk about a hot trend. Yeah. I thought I was like, this is a forever, like, has this been go because I was a kid. I was like, has this been happening forever? no, this is this a two year window.

Do you even know what river dance is? I know what its okay. I can’t. Was, it was a big deal. [00:02:00] Uh, our listeners who are maybe 40 years, 35 years old and above, like you guys know river dance was a big deal. It’s nothing to do with this episode. So let’s get into it. Dan, uh, the secret technique for deferring taxes that nobody talks about go, Ooh,

[00:02:16] Dan: so 10 31 exchange.

I dunno if anybody’s heard about that. They may have heard about that. But if you, if you know what that is, it is a way to sell a property and take those proceeds from the sale, your profits, and transfer them immediately into something that’s like kind. So in our space, that would be some other kind of real estate.

And if you do that, you could take your profits, move ’em to the next thing and not take the tax hit. Now you don’t, uh, forego the taxes, then it’ll go away. You just defer ’em and the logic here is you can. Deferring until you kick the can. Uh, I think that’s what lot of guys are, are trying to

[00:02:48] Anthony: do. Mm-hmm so, yeah.

And then when you die and your children inherit your property, it resets at the higher

[00:02:54] Dan: basis. Yeah. So if you could make it all the way to your demise, then those taxes actually do

[00:02:59] Anthony: [00:03:00] kind go away. They do. Yeah. So this is like a, a, a tactic that really, really wealthy families like the Rockefellers and. um, uh, trumps of the world have, have utilized for passing like these really valuable assets down through the line.

So the 10 31 is like the golden goose of tax deferral. It’s fantastic. There’s some issues though with it. One is the light kind. So you, the building that you’re selling has to have the name on the deed of the building that you’re selling. So the one that you’re own right now has to match the name on the deed of the building that you’re buying.

That’s a really big. um, if you want to be passive specifically, and that’s what we’re gonna talk about through in this angle today is like how to do this passively. But the biggest issue with the 10 31 that I see is, and this is how I talk about all the time is that it’s like riding a horse, trying to thread a needle, or riding that horse through a dirt field, because the timing is very, very difficult.

You have to, when you’re ready to sell a building, you have to have another building lined up. That’s an [00:04:00] awesome deal. Mm-hmm and then you have to be able to close both of those deals within a pretty tight time. And so that can create a lot of issues for investors who you, maybe you wanna sell your building.

And you’re looking around the market right now and you’re like, where are all the deals? That’s a good question. So what do you do.

[00:04:14] Dan: Yeah, it’s tough to make deals work in this environment. And real real estate moves very slow. Uh, so even a, you know, timeline of 180 days or whatever, um, that might sound like a long time, but when you’re dealing with things that take a couple of months to buy and then sell, that’s like, you know, one botch transaction, one buyer.

Backing out or, or one seller backing out is could completely derail things. So it’s, so it’s tricky. And the other main thing you kind of mentioned was, um, a lot of people, if they’re selling a property, they’re probably doing that for a reason. They don’t wanna own real estate actively anymore. So how do you still take advantage of this, um, this, this opportunity to defer taxes without still being actively involved?

I think that’s really the secret part is you could actually do that, which is pretty.

[00:04:56] Anthony: Yeah. So what we’re gonna talk about here is something called a tick [00:05:00] structure or a tenant. Ticktack a tendency in common, which is the secret weapon that nobody talks about for Def, for deferring taxes. I had a little stroke there, so here’s why it’s relevant.

So back in June, we did a deal with a couple other investors, two investors in particular, who both had 10 31. Both of them wanted to sell their buildings and roll it into a new, awesome investment opportunity. They were like duplexes and plexes. They wanted to put it into a bigger commercial multi-family asset and they also wanted to make a move towards being more passive.

They didn’t necessarily want to be involved in the day to day operations. So they come to us and they’ve invested into our syndications in, in the past. And they’re like, we’d like working with you guys. Is there a way we can 10 31 into your syn? The answer is yes, but it’s complicated. And so it it’s really hard to make work.


[00:05:49] Dan: Usually, unless someone is bringing a substantial amount of capital, the cost of actually facilitating that, uh, is gonna be prohibitive. Yep. So, you know, for under a million dollars, if you’ve got a couple hundred thousand [00:06:00] from a duplex or a couple duplexes, it’s gonna be tough to find, you know, some sort of large syndicated deal.

That’s gonna allow this. So that’s where this kind of smaller tick structure comes into.

[00:06:09] Anthony: So then what we did is we had this building, how big was pleasant was around 34, 34. Yeah. 34. So around 34 units, um, exactly 34 units give or take around there.

[00:06:20] Dan: Weird little space in the

[00:06:21] Anthony: basement. Yeah. We call it a bedroom and city doesn’t like it.

Um, 34. So you take this building, you take the deed in particular and you say, okay, the tenant in the tenant in. Is gonna say we all are co-owners that’s an important one. Important thing is we’re not necessarily partners, not partners at all. We’re co-owners and we’re gonna take that deed and we’re gonna like split it into like

[00:06:40] Dan: placing a

[00:06:40] Anthony: cake.

Yeah. On this deal. We had two other people coming 10 31. So we split it into thirds. But if, for simplicity’s sake, let’s just say we have one investor bringing 10 31 money and it’s us. On the other side, we split the deed in half and we own half the building and they own the other half. And then, then. How do we navigate around like the [00:07:00] operations and like them being able to stay passive?

[00:07:02] Dan: Yeah. So that’s the tricky part is the, the tick is the way it is and allows this to happen. For whatever reason, because it’s specifically not a partnership. And so you do not wanna skirt the lines of creating something that is effectively a partnership, uh, or else you could be putting the 10 31 investors funds at risk.

So don’t, don’t get sloppy with this. Um, this is something that is. You know, watched, right. Uh, and you don’t wanna end up in an audit or anything like that. So it’s very specifically not a partnership, uh, but that also sets up for some weird nuances. Um, because by that logic, theoretically, the residents should be paying half the rent to this guy and half the, the rent to this other guy, because it’s a, co-ownership, it’s, you know, two very separate entities.

So to avoid that, it’s actually pretty simple. You just have a good management agreement that. X Y and Z management company agrees to collect the runs on behalf of these two co-owners. So the residents pay one management company. So management agreement, uh, with the management company, whether you [00:08:00] own that company, or it’s a third party company solves for a lot of those kind of operational issues.

Mm-hmm um, and there’s some other, you know, nuances that we don’t wanna go too far on the weeds for, but that’s one of the biggest ones, because you don’t want your, your residents having to. Two different guys rent. That’s gonna be a complete

[00:08:13] Anthony: nightmare. Yeah. So that’s the, the tenant in common. Um, you know, this is an under 10 minute episode, so we’re gonna try and keep it short.

Um, but that is the secret technique for deferring taxes that really nobody talks about because the, a lot of operators don’t do it. It’s not something that they probably advertise very broadly because a lot of work. Yeah. It’s a little, and it’s a little bit, um, what’s the word I wanna say esoteric, uh, convoluted.

[00:08:36] Dan: It can be convoluted trying to come to a, a structure that makes sense for everybody. Because it’s not a partnership.

[00:08:42] Anthony: Yeah. So can’t just you last year, we’ve done like five of these. Yeah. Yeah. That’s, we’ve done more of these than we’ve done syndications at this point at year. There’s a lot of people that have this

[00:08:51] Dan: need.

I’ve noticed there’s a lot of people that have been active owners. You know, wanna still own real estate, just not do all the things.

[00:08:57] Anthony: Yeah. So if you’re listening to this and you are, you know, [00:09:00] started out with your, like your duplex Plex, or you have a portfolio of active and you’re trying to 10 31, it, but you also wanna kind of go passive, you know, this is a conversation to have with some operators that you might be interested in working with and just saying, Hey, is there any chance that we could do at tenant in common and kind of like structure there that, you know, Uh, facilitate the 10 31.

So, and when you make it work, it’s the coolest thing ever like that deal that we did in June pleasant with those two investors, it. It’s awesome. It’s super cool. To be able to like, say like help somebody to defer all this taxes. Cause they had pretty big what, what the IRS or whoever calls booty. Yeah. Or boot

[00:09:37] Dan: no, I think it it’s great to solve that problem, especially when, when people come to us and they didn’t know this existed and we, you know, kind of shed some light on it.

They’re like, oh, this is perfect. I wish this was more readily available. And everybody knew about it cuz there’s a ton of people that would ton of

[00:09:50] Anthony: people could use it. Yep. So take this information, go forth and spread it. Wild. And, uh, we will look forward to seeing you guys in the next episode, um, make sure that you get [00:10:00] into the, the dance line.

We’re gonna be river dancing. And so as you’re spreading that, this knowledge to the world, like you’re, you’re, you’re one of the Jers that is maybe we edit that part out and we’ll guys see you in. We love you all. Bye. Yeah, we should

[00:10:17] Dan: try to cut that one.

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