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Tax Filing for Tenants in Common (TIC) Businesses in Real Estate: A Comprehensive Guide

In real estate, tenants in common (TIC) is a popular ownership arrangement where multiple businesses co-own a property together. While TIC provides a flexible and efficient way to share ownership, it also impacts tax reporting. In this blog, we will delve into how businesses in a TIC structure file their tax returns and the importance of accurate record-keeping to ensure compliance and maximize tax benefits.

  1. Understanding TIC Ownership Structure

In a TIC arrangement involving businesses, each co-owner, or business entity, maintains its distinct legal identity. This means that TIC does not create a new legal entity for tax purposes. Instead, each business entity (whether a corporation, partnership, LLC, or another legal form) files its own tax return.

  1. Separate Tax Returns for Each Business Entity

Every business involved in a TIC owns a specific percentage share of the property. Accordingly, each entity reports its share of income, expenses, gains, and losses related to the property on its individual tax return. This separate reporting ensures that the tax liabilities and benefits are attributed to the respective business entities, avoiding any tax intermingling.

  1. Reporting on Individual Tax Returns

Let's illustrate this with an example: Suppose there are three businesses - Business A, Business B, and Business C - in a TIC arrangement owning a property. Each business will report its portion of property-related financials on its own tax return.

  • Business A files its tax return and includes its percentage share of income, expenses, gains, and losses related to the property.

  • Business B does the same and reports its share on its own tax return.

  • Business C follows suit and files its own tax return, detailing its portion of property-related financials.

  1. TIC Agreement and Ownership Percentages

The TIC agreement is a crucial document that outlines the ownership percentages or shares of each business entity in the property. These ownership percentages dictate the distribution of income, expenses, and gains/losses among the co-owners. It is essential to draft a comprehensive and legally binding TIC agreement to avoid any conflicts in the future.

  1. Importance of Accurate Record-Keeping

Since each business entity is responsible for its own tax reporting, maintaining accurate records is paramount. Proper record-keeping ensures that each co-owner can accurately report its share of financials, reducing the risk of discrepancies and potential tax audits.

  1. Seek Professional Tax Advice

Navigating the complexities of real estate TICs and tax reporting can be challenging. Consulting with a tax professional or accountant familiar with TICs and real estate taxation can be immensely beneficial. They can help businesses understand the intricacies of tax laws, identify potential tax deductions, and ensure compliance with the ever-changing regulations.

Tenants in common (TIC) is an effective ownership structure for businesses co-owning real estate properties. Each business entity files its separate tax return, reporting its share of income, expenses, gains, and losses related to the property. Accurate record-keeping and a well-drafted TIC agreement are crucial to avoid conflicts and maximize tax benefits. By seeking professional tax advice, businesses can ensure compliance and make the most of their TIC investment. Take charge of your TIC property and ensure smooth tax filing with proper planning and expert guidance.

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