John Hannan Group LLC


	1031 Property Exchange / Tenant-In-Common Many individual financial portfolios contain real estate to provide opportunities for both income and capital appreciation potential. However, some investors are hesitant to sell their properties because of concerns over capital gains taxes. Through a 1031 tax deferred property exchange, real estate investors can legally defer capital gains taxes. The investor can sell their investment, business, rental or vacation real estate, and reinvest the net proceeds in other like-kind real estate. John P. Hannan Group specializes in 1031 exchange properties. We work with the leading 1031 exchange property sponsors, helping our clients select from a variety of Tenant-In-Common (TIC) and Delaware Statutory Trust (DST) programs. We look for the best office, retail, shopping center, and multi-family 1031 exchange property offerings. We only choose properties that survive our demanding, thorough due diligence process. We are here to help! Tenant-In-Common Benefits Defer capital gains taxes Generate renewed tax deductions that permit greater tax savings Eliminate management obligations Participate in more passive forms of real estate ownership Eliminate management obligations Creates access to a larger pool of higher-quality investment properties Achieve higher net cash flow with less liability (non-recourse debt) Enjoy geographic diversification and property variety Triple-net lease structure provides stable returns Interest can be transferred the same as sole ownership property Benefit from the extensive due diligence performed Tenant-In-Common Risks Only available to accredited investors Subject to the usual risks of real estate Cash flow and returns are not guaranteed Involve fees that may offset tax savings Generally are illiquid. There currently is no secondary market Require a high level of due diligence. Failure to comply with tax code requirements for TICs could eliminate all tax benefits. The tenants-in-common form of ownership may require unanimous consent to sell a TIC interest. The subsequent sale of TIC interests may only be possible at a significant discount to the net asset value of the undivided interest of the real estate. Risks include failure to meet required completion deadlines as well as the potential lack of cash flow. What is a Tennant-In-Common? The Tenant-In-Common (TIC) ruling (Revenue Procedure 2002-22), commonly referred to as fractional ownership or co-ownership, allows you to exchange your property into an undivided, fractional interest of a higher-valued, much larger, better-located property. Each co-owner receives an individual deed at closing for his or her undivided percentage interest in the entire property. Each co-owner assumes their own pro rata share of the income, debt and tax benefits in a turn-key solution without the headaches of daily management. The investor has the same rights a single owner would enjoy. The required investment amount will vary depending on the property. Usually most TICs minimum investments are around $250,000. The TIC investment holding period can vary from three to five years to upwards of twenty years for the dissolution of the interest and sale of the property. Investment Property Types In order to accomplish a 1031 property exchange, the replacement property must be “like kind”. "Like-kind" means that the property to be sold and the property to be purchased are held for productive use in a trade or business, or for investment purposes; taxpayers are free to purchase whatever type of property they want. The investor must have direct ownership in the real estate being sold and the replacement property. You cannot exchange real estate for a partnership interest or interest in a limited liability company or vice versa. 1031 Exchange Deadlines & Rules The IRS gives investors a maximum of 180 calendar days from the closing of the initial sale to complete the exchange. Within the first 45 days of this period a seller must file a list of possible replacement properties with a qualified intermediary (QI). A QI is a firm certified to act as the closing agent for 1031 property exchanges. A seller may target up to three properties regardless of value or a group of properties with a combined value that does not exceed 200 percent of the value of the initial property sale. Should either deadline be missed, the IRS will bill you for capital gains. The funds in a trust account can be used as earnest money for designated property once all IRS requirements for a 1031 tax exchange transaction are met. Delaware Statutory Trusts What is a Delaware Statutory Trust? A Delaware Statutory Trust (DST) is an unincorporated association which is created by a governing instrument ("trust agreement") under which either (a) property is held, managed, administered, invested and/or operated, or (b) business or professional activities for profit are carried on by a trustee or trustees for the benefit of a person who is entitled to a beneficial interest in the trust property. A Delaware Statutory Trust has a separate legal existence and can conduct business in its own name. Benefits of a Delaware Statutory Trust: Limited liability for beneficial owners and trustee managers Broad contractual flexibility Bankruptcy remote characteristics Flexible tax treatment opportunities Protection of trust assets from creditors Privacy of trust information and accounting Management A Delaware Statutory Trust is managed by, or under the direction of, its trustees unless the trust agreement provides otherwise. Management of a trust may be delegated by the trustee(s) or may be vested directly in an agent of the trustee. Formation Requirements A Delaware Statutory Trust created by a trust agreement is formed upon the filing of its certificate of trust. A certificate of trust must be signed by all of the trustees. A DST that is, or will become, a registered investment company must maintain a registered agent and registered office within the state. Liability Issues An owner of a beneficial interest in a DST is generally entitled to the same limitation of personal liability afforded to stockholders of Delaware private corporations for profit. Similarly, a trustee is generally not personally liable to any person other than the Delaware DST or its beneficial owners for any act, omission or obligation of the statutory trust or any trustee thereof. Tax Considerations Similar to the LLC and Limited Partnership, a Delaware Statutory Trust can be structured to qualify for "pass through" tax treatment for state and federal income tax purposes and, therefore, avoid income tax at the entity level. At this time, the State of Delaware does not impose an annual tax or franchise tax upon a DST. Real Estate Investment Trusts A real estate investment trust (REIT) allows investors to pool funds for participation in real estate ownership or financing (similar to a mutual fund). They provide centralized management and limited liability. The goal of participating in a REIT is to acquire interests in high-quality real estate that will not only immediately provide cash flow from tenant rents, but will also appreciate in value so they can ultimately be sold at a profit. A REIT must distribute at least 90 percent of its annual income to shareholders or reinvest the capital to improve its portfolio. Since investors contribute capital to fund a variety of real estate projects, they receive a return on their capital in both the payment of dividends, and an increase in equity through growth of the company. There are no capital calls, an investor’s liability is limited to their original capital contribution. However, REITs do not provide Section 1031 tax-deferral for investors. In terms of liquidity, generally the investment life is around 3-10 years. Public REITs that are privately traded are usually illiquid for 12 months. Thereafter, the investor may incur a surrender charge. note: real estate values may fluctuate based on economic and environmental factors.

3070 Bristol Street • Suite 500 • Costa Mesa, CA 92626 • Tel 877.428.1031x307 • Fax 315.217.0410
Securities offered through: Private Asset Group, Inc. Member FINRA • SIPC