The Challenge
In 2024, an investor sold her long-term rental property for $1.3 million. She had purchased it years earlier for $500,000, which created $800,000 in capital gains and a significant tax bill on the horizon. She wanted to reinvest through a 1031 exchange to defer taxes but struggled to find a suitable replacement property. Everything available was either overpriced or delivered poor returns. Losing more than $200,000 in taxes was not an option, yet time was running out.
The Approach
Primior presented an alternative solution that allowed her to remain compliant with 1031 exchange requirements while gaining access to a higher-quality asset.
Step 1: Tenants in Common (TIC) Structure
We structured the investment so she could roll her gains into a fractional ownership position in one of our stabilized, income-producing commercial properties. By using a Tenants in Common agreement, her name appeared directly on the property title, meeting the IRS rules for 1031 exchange qualification.
Step 2: Immediate Cash Flow and Long-Term Upside
Because the property was already stabilized and generating income, she began receiving distributions immediately after closing. The investment provided reliable returns without any of the responsibilities that come with managing an individual rental property.
Step 3: Strategic Conversion for Additional Tax Benefits
After one year, she converted her ownership interest into a membership interest within Primior’s holding company. This transition opened the door to new tax advantages, including amortization of soft costs such as legal fees, architecture, permits, and engineering.
The Outcome
By applying a compliant and flexible 1031 exchange strategy, the investor achieved significant financial benefits:
Deferred capital gains taxes on $800,000
Earned approximately 15% annual returns
Gained new write-offs through amortization
Eliminated property management responsibilities
Conclusion: Expanding the 1031 Playbook
This case highlights how sophisticated structuring can help investors maximize the benefits of a 1031 exchange while avoiding the limitations of traditional property swaps. Through a Tenants in Common agreement followed by a structured conversion, investors can defer taxes, increase returns, and access new depreciation opportunities—all while stepping away from hands-on management.
At Primior, we help investors navigate complex exchange requirements with strategies that create long-term wealth and tax efficiency.
Disclaimer: This content is for educational purposes only. Primior is not a licensed tax advisory firm. Please consult your CPA or tax professional before implementing similar strategies.
