1031 Exchange Education
Tenant-In-Common (TIC) Structure
Shared Ownership, Smarter Investment.
When most people think about real estate ownership, they imagine one name on the title. Maybe two. But in the world of investment real estate — especially when working with 1031 exchanges — there's another form of ownership that's been gaining traction: tenancy-in-common, or TIC.
A tenant-in-common structure allows multiple individuals to each own a fractional interest in a single property. For example, if four people co-own an asset as tenants-in-common, each could own 25% of the property — and be recognized as such on the title.
It's not a new concept; TIC ownership has existed for centuries. But thanks to a key IRS ruling in 2002, its use in modern real estate investing has grown dramatically.
Why TICs Have Become So Popular
IRS Revenue Procedure 2002-22
Established that tenant-in-common ownership qualifies as "like-kind" property for 1031 exchange purposes — unlocking TIC investing for thousands of property owners.
In March 2002, the IRS released Revenue Procedure 2002-22, which outlined how tenant-in-common ownership could be treated as "like-kind" property for the purposes of a 1031 exchange. That opened the door for investors looking to sell one property and reinvest into another — without having to take on full ownership of a new, often more expensive asset.
This ruling allowed real estate sponsors to create TIC investment programs that complied with IRS guidelines. As long as those guidelines were met, TIC shares could be used as qualified replacement property in a tax-deferred 1031 exchange.
In simple terms: you could sell a property, defer the taxes, and reinvest into a shared interest in a premium commercial asset — often a property you wouldn't have been able to afford or manage on your own.
How TIC Ownership Works
In a typical TIC structure, each investor owns a direct interest in the property title. You're not just investing in a fund or entity — you're actually on the deed. A special-purpose LLC (SPE) is often created for liability protection, but you, the investor, are legally recognized as a co-owner.
This comes with benefits:
Ownership rights
Your name (or entity) goes on the title.
Legal protection
The SPE LLC adds an extra layer of liability shielding.
Voting power
Investors typically retain a say in major property decisions.
1031 eligibility
Your fractional interest can qualify as like-kind property.
This model has been especially useful for investors nearing retirement who want stable income and tax deferral — without the headaches of active property management.
The Potential Risks of TIC Investments
While the benefits are appealing, TIC ownership does come with structural complexities and limitations.
Decision-making friction
In many TIC agreements, major decisions must be approved unanimously or by a supermajority of the investors. If investors can't agree on a key decision — like refinancing or selling — it can stall progress and cause headaches.
Lender approval requirements
While TIC investors generally don't hold personal liability for the property's loan, many lenders require approval of each individual TIC owner. This can slow the deal or limit financing options.
Ongoing maintenance costs
The special LLC created for each investor typically requires annual maintenance fees, which can range from $300 to $900 per year depending on the state.
These are all reasons why it's critical to read the Private Placement Memorandum (PPM) of any TIC offering thoroughly and consult with professionals before investing.
TICs vs. DSTs: A Shift in the Landscape
While TICs remain a valid and legal form of 1031 replacement property, many investors are now turning to Delaware Statutory Trusts (DSTs) instead. DSTs provide similar access to institutional real estate but don't require the same level of investor consensus for decision-making. That means less friction, less risk, and truly passive income.
At ICON1031, we help clients evaluate both options. In some cases, TICs make sense — particularly for those who want more control. But for most passive investors looking to defer taxes, avoid landlord headaches, and protect their equity, DSTs offer a cleaner path forward.
Final Thoughts
Tenant-in-common ownership is a powerful tool when used correctly. It opened doors for investors who wanted access to premium properties and tax deferral without owning an entire building themselves. But like any investment structure, it comes with trade-offs — especially when it comes to group decision-making and loan complexity.
If you're considering a 1031 exchange and want to explore TICs, DSTs, or both, we're here to guide you every step of the way.