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Old 11-04-2007, 11:03 AM
Senior MemberCaptains Club Member
Join Date: Aug 2006
Location: Central Florida
Posts: 8,326
Default Re: 1031 Tenants in Common Arrangements


Thanks for chiming in. From what I can tell, IRS has condoned these, although I have not read the case law. As a fellow CPA, I am also concerned about clients purchasing these properties at inflated prices. The property we are looking at is a free standing Gander Mountain store. I was able to trace the purchase price to determine how much profit is built into the deal. From what I have seen, there is a wide variety of profit spreads in these, and some not doing adequate due diligence (i.e. commissions blur their vision) may not be getting a reasonable deal. In my opinion, local commercial properties are also inflated due to the amount of 1031 money in the marketplace. In my client's situation, the effective tax rate on the property being sold is 32%. The calculation is complex due to a built-in gains tax issue, and the original property sold had very little basis (value $9 million, basis $350K) so there is a lot of tax on the table.

If I can charge a client 1% on a $1 million deal and save them $50K, along with doing appropriate due diligence, I think everyone can win. I am just not 100% comfortable with the product yet.
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