Tenant-in-common (TIC) ownership is a form of direct co-ownership in which each investor holds an undivided, deeded fractional interest in a property. In the investment context, TIC programs allow up to 35 co-owners to share institutional real estate while each retains 1031 exchange eligibility for their interest.
How TIC ownership works
Unlike a fund or trust, a TIC involves no intermediate entity: each co-owner is on title. Interests don’t have to be equal, each owner receives their proportionate share of income and sale proceeds, and each can generally sell, finance, or bequeath their interest independently — subject to the co-ownership agreement. Because the IRS treats a properly structured TIC interest as direct real estate ownership, an investor can use a 1031 exchange to move from a wholly owned property into a TIC interest, or out of one.
The structure most advisors encounter follows IRS Revenue Procedure 2002-22, which sets the conditions under which the IRS would rule that a co-ownership arrangement is real estate rather than a partnership — the distinction that preserves exchange eligibility. Key conditions include the 35-co-owner ceiling and the requirement that major decisions — selling the property, refinancing, entering significant leases — receive unanimous co-owner consent.
The unanimity problem, and why DSTs took over
Unanimous consent is the structure’s defining strength and weakness. It protects every owner’s voice; it also means one holdout among 35 can block a sale or a needed refinancing. TIC programs boomed in the mid-2000s as the primary vehicle for passive 1031 investors, but the 2008–2009 downturn exposed the governance flaw: properties that needed loan workouts or quick decisions were paralyzed by fractured ownership, and lenders — who had to underwrite up to 35 separate borrowers — retreated from the space.
The Delaware Statutory Trust largely replaced the TIC for syndicated exchange programs because it solves exactly those problems: one borrower (the trust), one decision-maker (the trustee), no unanimity requirement, and lower minimums. The trade is control — DST investors have essentially none, while TIC owners retain real (if collective) authority over major decisions.
TICs remain relevant in specific situations: small groups of related or like-minded investors co-owning property deliberately, arrangements where owners want genuine governance rights, and deals where the property plan doesn’t fit within a DST’s structural restrictions — TICs can raise additional capital and refinance, which DSTs cannot.
Taxation
Each co-owner reports their share of income, expenses, and depreciation directly, consistent with deeded ownership. The main tax risk is structural: if the arrangement drifts into acting like a partnership — sharing profits from operations beyond the property, restricting owners’ rights in ways inconsistent with co-ownership — exchange eligibility can be jeopardized. Well-drafted TIC and management agreements exist largely to prevent that recharacterization.
FAQ
What is a tenant-in-common interest in real estate investing?
A deeded fractional interest in a specific property, held directly on title alongside up to 34 other co-owners, with income, expenses, and sale proceeds shared pro rata.
Is a TIC interest eligible for a 1031 exchange?
Yes, when structured consistently with Revenue Procedure 2002-22 — the arrangement must function as co-ownership of real estate, not a partnership. That structuring is the crux of TIC due diligence.
What's the difference between a TIC and a DST?
A TIC puts each investor on the deed with voting rights and unanimous consent on major decisions; a DST puts a trustee in control with investors holding passive beneficial interests. TICs allow refinancing and new capital; DSTs don’t. DSTs offer cleaner financing, lower minimums, and no holdout risk — which is why they now dominate the passive exchange market.
How many owners can a TIC have?
Up to 35 co-owners under the IRS guidance that syndicated programs follow.
Related terms
Delaware Statutory Trust (DST) · 1031 Exchange · Beneficial Interest · Qualified Intermediary · Replacement / Relinquished Property
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