Tenancy in Common (TIC) simply explained – Tenancy in Common (TIC) is a popular form of ownership in the US that allows multiple people to own property together. Today we will take a closer look at the basics of TIC, the advantages, disadvantages and tax aspects. Setting up a US company? Learn more about US legal forms here.
Tenancy in common is a form of joint ownership in which two or more people (TIC owners) own shares in a property. Each owner has the right to sell or transfer their share without having to obtain the consent of the other owners.
Features of Tenancy in Common
No right to transfer shares: Each owner can sell or bequeath his share.
Different ownership shares: Owners can have different ownership shares in the property (e.g. 50/50 or 70/30).
Joint use of the property: All owners have the right to use the property, unless other agreements have been made.
Advantages of Tenancy in Common
Flexibility in the ownership structure
Facilitated real estate investments with several partners
No inheritance rights for co-owners
A key advantage of TIC is the flexibility in the ownership structure, which allows several people to invest in a property together. This can be particularly useful if investors make different capital contributions or if several family members are interested in a property.
Disadvantages of Tenancy in Common
Independent decisions can cause conflicts
Liability for debts and obligations of the property
No control over the sale or transfer of shares
One disadvantage of TIC is that decisions about the property must be made by consensus. If an owner sells or transfers their shares, this can have an impact on the remaining owners, as they may not have any influence over the new co-owner.
My recommendation for the first 10 properties
For the first two to ten properties, an LLC (see GmbH in Germany) is best suited to minimize liability risks and at the same time take advantage of tax benefits. The LLC limits the personal liability of the owners, while profits and losses are attributed directly to the shareholders, which avoids double taxation. In comparison, a Limited Partnership (see KG) offers more flexibility in terms of passive participation, but the general partner bears full liability. A general partnership (see OHG) involves higher risks due to unlimited liability.
US-Firmengründung speziell für Tax-Lien-Investoren
US-Firmengründung speziell für Tax-Lien-Investoren. Dieses exklusive Paket wurde speziell für deutschsprachige Tax-Lien-Investoren entwickelt und enthält alles Wichtige, was ein Investor benötigt, um seine Tax-Lien-Investments erfolgreich umzusetzen:
The tax aspects of TICs can be complex, as they depend on various factors, including the ownership structure and the owners’ individual tax obligations.
Important tax aspects
Pass-through taxation of profits
Deductions for operating costs and depreciation
Capital gains on the sale of shares
The gains from a TIC are usually reported on the individual owner’s tax return as pass-through income. This means that owners report the gains and losses of the property directly on their personal tax return. In addition, owners can deduct operating expenses and depreciation to reduce their tax burden.
Save taxes with Tenancy in Common
Investors can benefit from the tax advantages by structuring their shares in a TIC. It is important to understand the tax implications of the ownership structure and develop appropriate tax planning strategies.
FAQ on Tenancy in Common
What is the main difference between TIC and Joint Tenancy?
The main difference lies in the transfer of shares: With TIC, owners can sell or transfer their shares independently, while joint tenancy allows an automatic transfer of ownership to the remaining owners in the event of the death of a partner.
How does the transfer of shares in a TIC work?
Each owner has the right to sell or transfer their share without having to obtain the consent of the other owners. However, it is advisable to inform the other owners of the intended transfer.
Establishment of a tenancy in common for investors
Forming a tenancy in common can be an attractive option for investors who want to invest in real estate together without the complexity of a corporation or limited liability company.
TICs offer flexibility and the opportunity to invest in properties that may not be affordable for individual investors. However, it is important to be aware of the legal and tax implications.
Conclusion
Tenancy in common is an accessible and flexible form of ownership for real estate investors in the USA. It offers numerous benefits, including the ability to invest in real estate jointly and benefit from tax advantages. If you are thinking about setting up a tenancy in common, it is advisable to find out about the specific requirements and legal aspects and possibly consult a professional to make informed decisions.
Legal forms USA: Foundation & real estate
What types of company are there? If you want to set up your first US company, choosing the legal form is one of the first steps in the company formation process. Whether you want to set up a special real estate company or a start-up, we have summarized all types of companies in the USA for you here – with extra tips for real estate investments, of course.
For the first two to ten properties, an LLC (see GmbH in Germany) is best suited to minimize liability risks and at the same time take advantage of tax benefits. The LLC limits the personal liability of the owners, while profits and losses are attributed directly to the shareholders, which avoids double taxation. In comparison, a Limited Partnership (see KG) offers more flexibility in terms of passive participation, but the general partner bears full liability. A general partnership (see OHG) involves higher risks due to unlimited liability.
