1031 Exchanges in Real Estate Syndication: A Beginner-Friendly Guide

 

📌 Article Index

1. Introduction

2. What Is a 1031 Exchange?

3. What Is Real Estate Syndication?

4. How 1031 Exchanges Apply to Syndication

   • TIC vs. LLC/LLP Structures

   • Step-by-Step Process

5. Benefits & Challenges

   • Tax Deferral

   • Increased Buying Power

   • Portfolio Diversification

   • Timeline & Legal Risks

6. Practical Tips

7. Real-Life Examples

8. Statistics You Should Know

9. FAQs

10. Conclusion & Call to Action

1. Introduction

Welcome to Learn with Manika! Today we dive into the powerful synergy between 1031 exchanges and real estate syndication. Whether you're a beginner or expanding your investment horizon, this guide breaks things down simply, with practical steps, clear examples, and insider tips—perfect for students and novice investors alike.

2. What Is a 1031 Exchange?

Under Section 1031 of the U.S. tax code, you can sell an investment property and defer capital gains tax by reinvesting the proceeds into a "like-kind" property—within 45 days for identification, and closing within 180 days

Key rule: The new asset must be investment real estate, not personal property 

3. What Is Real Estate Syndication?

Real estate syndication is when multiple investors pool capital to invest in larger properties—usually structured as Limited Partnerships (LP) or LLCs. One or more General Partners (sponsors) manage the project, while Limited Partners (passive investors) contribute funds 

4. How 1031 Exchanges Apply to Syndication

✅ 4.1 TIC vs. LLC/LLP Structures

• Tenancy-In-Common (TIC): You directly own a share of the property—eligible for 1031 exchange

• LLC/LLP Syndication: Shares typically treated as securities—not eligible for 1031 
  ➡️ To combine syndication with a 1031, syndications use a TIC or DST structure designed for this purpose.

🧑‍💼 4.2 Step-by-Step Process

1. Sell current investment property using a Qualified Intermediary (QI).

2. Identify a syndication offering structured as TIC within 45 days 

3. Close the TIC-based deal within 180 days .

4. File IRS Form 8824 to report the exchange.

5. Benefits & Challenges

✔️ Benefits

• Tax Deferral: Immediate reinvestment without capital gains tax 

• Buying Power: Access to larger, higher-value properties 

• Diversification: Spread across property types and locations 

⚠️ Challenges

• Strict Deadlines: 45-day ID and 180-day closing 

• Higher Thresholds: TIC syndications often require large caps—$500K+ 

• Complex Documentation: Legal compliance is critical.

• Liquidity Limitations: Syndications are less liquid; holding periods often 5–7 years 

6. Practical Tips

• Choose experienced TIC syndicators.

• Engage a qualified intermediary (QI) early 

• Have backup properties ready (3‑property or 200% rule) 

• Maintain detailed legal and tax documentation.

• Align investment goals with syndicator’s exit strategy and holding timeline 

7. Real-Life Examples

🎯 Example 1:

You sell a $600K rental home, identify a TIC stake in a $2M apartment syndicate, and within 180 days complete the purchase—as a result, you defer all capital gains tax and now enjoy passive income from a professionally managed property.

🎯 Example 2:

Jane sells her small retail building for $1M. She uses the 45-day window to pick two TIC offerings: an office complex and a warehouse portfolio. She closes on both—staying diversified and tax-deferred.

8. Statistics You Should Know

• Typical syndication IRR: 18–23%, cash-on-cash returns 5–8% over 5–7 years 

• Top-tier real estate fund managers can outperform others by over 12% annualized 

9. FAQs

Q1: Can I directly use a 1031 exchange to invest in any syndication?
A: Only if it's structured as a TIC or DST—not through typical LLC/LP structures .

Q2: What if I miss the 45-day window?
A: The exchange fails—you may owe capital gains tax on the sale.

Q3: Are TIC syndications illiquid?
A: Yes, they are generally illiquid until the project sells or refinances (typically 5–7 years).

Q4: What IRS form is required?
A: Use Form 8824 to report the acquisition.

Q5: Can I do back-to-back exchanges?
A: Yes, sequential 1031 exchanges can continue until death—effectively deferring taxes indefinitely 

10. Conclusion & Call to Action

A 1031 exchange into a TIC-based syndication is a powerful strategy for real estate investors seeking tax deferral, diversification, and passive income. But the structure is key—LLC-based syndications won’t qualify. By understanding the process, adhering to timelines, and working with trusted professionals, you can make high-leverage, tax-smart real estate moves.

✅ Ready to maximize your investment and defer taxes?

Contact Manika Fintax Solutions for experienced, paid filing support on structuring and executing your 1031 exchange into real estate syndication.

Keywords: 1031 exchange syndication, TIC 1031 exchange, real estate syndication tax deferral, passive investing, Learn with Manika

Call to Action:
📞 Contact Manika Fintax Solutions now to streamline your 1031 exchange and secure your stake in real estate syndication today!