Mary, 68 years old and a widow, sells her single-family rental property that she has owned for years for $300,000. She is facing a heavy capital gains and depreciation recapture tax. Knowing about the tax consequences well in advance, she contracts with a Qualified Intermediary (QI) to handle her 1031 exchange. The QI acts as an escrow agent. Mary knows the QI cannot be a regular agent for her, such as her accountant or attorney, so she selects a QI that her real estate agent recommends to her. At the closing, all of the funds from the sale of her house go directly to the escrow account of the QI, at which time Mary has 45 days to find property to replace her single family home. Mary is allowed to identify 3 potential properties, and she has 180 days to complete the transaction. She identifies a 10,000 sq ft metal warehouse leased to a local import-export company that has a cap rate of 9%, another single family home that is in a great area of town that she feels is due for appreciation, and a TIC property that is leased to a branch of one of the country's largest banks in Naples, Fl with a cap rate of 6%.

Mary spends the next several days doing research on the properties that she identified as potential exchanges. After looking further in to the metal warehouse, she realizes that the tenant has only been in business for a few years and if they were to move out she would have to invest time and money to find new tenants.

She really likes the single family home and feels that the appreciation potential could be great. She faces a challenge, though. The current interest rate environment and scorching increases in home values has left rents in such a state that the home does not produce a positive cash flow. Besides, Mary's last tenant caused her so many problems that she wondered if she wanted to deal with a home rental anymore.

Finally, she took a long look at the TIC exchange property. The building was built in 2002 and is in great shape. Mary lives in New Jersey, but has vacationed in Naples and knows the area well enough to have confidence that it would be a steady market. It does not pay her the income that the metal warehouse would pay her, but the credit quality of the bank is impeccable and the investment would certainly give her far less concern about tenant risk than the other two investments she is considering. Plus, Mary's bank is asking her to personally guarantee a loan on the metal warehouse. The financing for the TIC replacement property is non-recourse, using the property only to secure the loan with no personal guarantee. A non-recourse loan is an advantage over her bank's terms. These facts, coupled with the turnkey management structure that the sponsor is putting in place wins her over and Mary decides to go with the TIC replacement property. TIC 1031 properties tend to close very quickly, so even though Mary has 180 days to complete the deal, she completes the transaction in 60 days. The QI interacts with the TIC sponsor and the TIC broker that showed her the investment and sends the funds to the TIC Sponsor for Mary to close on her new TIC replacement property. Mary now owns a fractional interest in a $12,000,000 office building with 20 other investors, satisfying her 1031 exchange requirements and deferring substantial capital gains taxes.