Some investors selling a property want the scale of an institutional asset without the price tag of buying it whole, and, unlike the fully passive crowd, they still want their name on a deed. That is the niche the tenants-in-common structure fills. A TIC lets a handful of exchangers pool their capital, buy a larger building together, and each walk away holding direct, recorded title to an undivided fraction of it. It is the more hands-on cousin of the Delaware Statutory Trust, and the difference in control is the whole story.
What a TIC actually is
In a tenants-in-common arrangement, each co-owner holds an undivided fractional interest in the same property, with their own deed and their own spot on the title. You might own 15% of a $10,000,000 medical office building; another investor owns 20%; and so on. Crucially for a 1031, you are not buying shares in an entity, you are acquiring a direct real property interest, which is what lets a TIC interest serve as valid like-kind replacement property. Each owner receives their share of income, deductions, and appreciation, and can generally sell, will, or exchange their own interest independently down the road.
The IRS blessed this approach in Revenue Procedure 2002-22, which laid out the conditions under which a fractional co-ownership interest is treated as real estate (eligible for 1031) rather than an interest in a partnership (which is not). Among the guidelines: generally no more than 35 co-owners, each holding title directly or through a disregarded entity, with major decisions about the property typically requiring unanimous or near-unanimous consent, and each co-owner named on the title and on any loan.
Where the control cuts both ways
That direct ownership is the appeal and the friction in one package.
- You are on the title, and on the loan. A TIC co-owner is a named borrower on the property's financing, which means you help satisfy your own debt-replacement requirement, but also that you carry real responsibility for the deal.
- Big decisions need agreement. Selling the building, refinancing, or approving a major lease commonly requires the consent of all or nearly all co-owners. That protects your interest, and it can also mean a single holdout stalls a decision the others want.
- You have a genuine voice. Unlike a passive beneficiary, a TIC owner participates in the ownership. For someone who wants a say, that is exactly the point.
TIC versus DST, honestly
Both let you exchange into a fraction of a larger, professionally managed property, but they sit at different points on the control-versus-simplicity spectrum.
| Tenants in common (TIC) | Delaware Statutory Trust (DST) | |
|---|---|---|
| What you hold | Direct deeded title to a fraction | A beneficial interest in a trust |
| Control | A real vote on major decisions | None; the sponsor decides everything |
| Number of investors | Generally up to 35 | Can be many more |
| On the loan? | Yes, named borrower | No; debt is non-recourse at trust level |
| Decision-making | Often needs unanimous consent | Fully passive, no owner action |
| Best for | Wanting scale plus a say | Wanting scale with zero involvement |
Neither is better in the abstract. The DST is the more genuinely passive option; the TIC gives you ownership rights and a seat at the table, at the cost of coordination with your co-owners and being on the hook as a borrower. Both are typically offered to accredited investors through private placement and carry real risks, including illiquidity, fees, dependence on the sponsor or co-owners, and loss of principal. Which structure fits depends on how much control you actually want and how much complexity you are willing to shoulder, which is the due-diligence conversation we have before you commit to either.
The bottom line
A tenants-in-common interest is for the exchanger who wants into a bigger, better-managed asset than they could buy alone, but is not ready to give up ownership entirely. You get a real deed, a real vote, and a share of a professional deal, in exchange for coordinating with up to 34 other owners and standing on the loan. For the right investor it is a genuinely useful middle path between owning a whole building and owning a fully passive slice, and choosing between TIC, DST, and direct ownership is exactly where our exchange process starts.
Common questions about tenants-in-common 1031 exchanges
Does a tenants-in-common interest qualify for a 1031 exchange?
Yes. A properly structured TIC interest is treated as direct ownership of real property, which makes it valid like-kind replacement property. Revenue Procedure 2002-22 sets out the conditions the IRS uses to distinguish a qualifying TIC from a partnership interest, which would not qualify.
How many owners can a TIC have?
Under the Revenue Procedure 2002-22 guidelines, generally no more than 35 co-owners. Each holds direct title, individually or through a disregarded entity such as a single-member LLC.
How is a TIC different from a DST?
A TIC owner holds direct deeded title, is named on the loan, and votes on major decisions. A DST investor holds a beneficial interest in a trust, is not on the loan, and is fully passive. TIC offers control; DST offers simplicity.
Do TIC co-owners have to agree on decisions?
Usually, yes, for major actions. Selling, refinancing, or major leasing decisions commonly require unanimous or near-unanimous consent, which protects each owner but can also let a single holdout delay a decision.
Am I responsible for the mortgage in a TIC?
Typically you are a named borrower on your share of the financing. This helps you meet your debt-replacement requirement in the exchange, but it also means you carry real obligations, unlike a DST where the debt is non-recourse at the trust level.