Before Delaware Statutory Trusts became the dominant fractional 1031 option, the tenants-in-common (TIC) structure filled that role — and it still suits certain investors. A TIC gives you direct, deeded co-ownership of a larger property than you could buy alone, with more control than a DST but more complexity in financing and decision-making. Understanding how TICs work, how they compare with DSTs, and when each fits helps exchangers choose the right fractional structure. This guide covers tenants-in-common exchanges in full.
What Is a TIC?
A tenants-in-common arrangement is direct co-ownership of a property by multiple investors — up to 35 for 1031 purposes — each holding an undivided fractional interest with a deeded share. Each co-owner owns a percentage of the whole property, not a specific physical portion, and receives a proportionate share of income, expenses, and gain.
Because a TIC interest is direct ownership of real property, it qualifies as 1031 replacement property. An exchanger acquires a fractional deeded interest in a larger, often institutional-quality asset than they could afford on their own.
Each TIC co-owner has rights in the property, including a vote on major decisions, and can generally sell or transfer their interest (subject to agreements). This direct ownership and voting right is the defining feature that distinguishes a TIC from a DST.
How TICs Work in a 1031
In a 1031 exchange into a TIC, you use your exchange proceeds to acquire a fractional, deeded interest in a property co-owned with other investors. The TIC interest is treated as direct real-property ownership, satisfying the like-kind requirement, and you receive your proportionate share of the property's rental income and tax attributes.
A TIC is typically assembled by a sponsor who acquires the property and sells co-ownership interests to 1031 investors, with a TIC agreement governing the co-owners' rights and the property's management (often by a professional manager). The structure lets several exchangers pool into one institutional asset.
Because it's direct co-ownership, a TIC interest also lets you participate in major decisions and receive a deeded interest — giving you more direct rights in the property than a DST's beneficial interest provides.
TIC vs. DST: The Key Differences
A TIC and a DST are both fractional ownership of larger property used as 1031 replacement, but they differ structurally. A TIC gives co-owners direct deeded title and voting rights on major decisions, but financing requires lenders to underwrite multiple co-owners, and major decisions can require unanimous or supermajority consent.
A DST is a trust where the sponsor handles all decisions and pre-arranges non-recourse debt at the trust level; investors hold passive beneficial interests treated as direct real-property ownership. The DST is simpler, more passive, and easier to finance — but investors have no control.
The practical upshot: a TIC offers more control and direct ownership at the cost of complexity and potential decision deadlock; a DST offers simplicity, passivity, and easy debt replacement at the cost of control. Most modern fractional exchanges use DSTs for their simplicity.
Financing and Lender Issues
TIC financing is more complex than DST financing because lenders must underwrite multiple co-owners and structure debt across them. Each co-owner may be on the loan, and the lender must be comfortable with the TIC arrangement and the co-owners' collective creditworthiness.
This complexity, and the 35-investor limit, made TIC financing cumbersome — a key reason the DST structure, where debt is arranged once at the trust level (non-recourse, requiring no individual qualification), became more popular for fractional exchanges.
If you're considering a TIC, the financing structure and your obligations under it are important to understand. A DST avoids these issues by pre-arranging the debt, which is one of its main advantages for exchangers replacing leverage.
Decision-Making and Unanimous Consent
A defining feature — and challenge — of TICs is co-owner decision-making. Major decisions about the property (selling, refinancing, major capital expenditures, changing the manager) often require unanimous or supermajority consent among the co-owners under the TIC agreement.
This gives each co-owner a meaningful voice, which some investors value, but it also creates the risk of deadlock: if co-owners disagree about whether to sell or refinance, the decision can stall, potentially harming all of them. Aligning a group of up to 35 investors on major decisions can be difficult.
The deadlock risk is a real downside of the TIC structure and a major reason DSTs — where the sponsor decides and investors are passive — became preferred. In a DST you give up the vote, but you avoid the deadlock risk.
- A TIC is direct, deeded fractional co-ownership of larger property — and 1031-eligible.
- TICs offer voting rights and control; DSTs offer simplicity and pre-arranged debt.
- TIC financing and unanimous-consent/deadlock issues drove the shift toward DSTs.
The History of TIC Exchanges
TIC exchanges rose to prominence in the early 2000s after IRS guidance (Rev. Proc. 2002-22) clarified when a co-ownership arrangement would be treated as a TIC (direct real-property ownership eligible for 1031) rather than a partnership (an entity interest that isn't). This opened the door to sponsored TIC programs for 1031 investors.
TIC syndications grew rapidly, but the structure's financing complexity and decision-making challenges — and difficulties some programs faced during the 2008–2009 downturn — led the market to shift toward DSTs, which the IRS had blessed for 1031 use in Rev. Rul. 2004-86.
Today, DSTs dominate the fractional 1031 market, but TICs still exist and suit specific situations. Understanding this history explains why DSTs are now the default and why TICs occupy a smaller, specialized niche.
Why DSTs Largely Replaced TICs
DSTs largely replaced TICs for several reasons. Financing is simpler — the DST sponsor arranges non-recourse debt once at the trust level, versus underwriting up to 35 TIC co-owners. Decision-making is cleaner — the DST sponsor decides, avoiding TIC deadlock. And the DST has no practical limit on the number of investors (versus the TIC's 35), allowing smaller minimum investments.
DSTs also offer a smoother investor experience: fully passive, with the sponsor handling everything, and easier to divide among heirs. For most exchangers seeking fractional, passive replacement property, the DST's simplicity won out.
TICs retain a niche where investors specifically want direct deeded ownership, a vote on the property, or a particular financing structure — but for the typical fractional exchange, the DST is now the standard choice.
When a TIC Fits
A TIC can fit an investor who specifically wants a direct deeded interest in the property, a vote on major decisions, or a particular financing or ownership structure that a DST doesn't offer — and who is comfortable with the added complexity and deadlock risk.
Some larger exchangers, or those co-investing with known partners, prefer the TIC's direct ownership and control. And in certain situations, a TIC may offer structuring flexibility a DST doesn't.
For most exchangers seeking passive, fast-closing, diversified fractional replacement, though, a DST is simpler — see our companion guide on fee-simple vs. fractional ownership. The TIC is the right tool when its specific features (direct title, voting rights) genuinely matter to you.
TIC Risks and Considerations
Beyond deadlock and financing complexity, TICs carry the usual real-estate risks plus some structure-specific ones. Co-owner disputes can arise; a co-owner's financial problems can affect the group (especially with shared financing); and selling an individual TIC interest can be difficult, as the secondary market is limited.
TIC programs also depend on the sponsor and property manager, so sponsor quality matters as it does for DSTs. And like DSTs, TICs are illiquid and best held for the full investment period.
These considerations don't disqualify TICs, but they're why the structure requires careful diligence — of the property, the sponsor, the TIC agreement, the financing, and your co-owners. For most investors, the DST's simpler structure avoids several of these risks.
How a TIC Is Structured
A TIC investment is typically assembled by a sponsor who acquires a property, places financing on it, and sells undivided co-ownership interests to up to 35 investors, each taking a deeded fractional interest. A TIC agreement governs the co-owners' rights, the property's management (usually by a professional manager), and the decision-making process.
Each co-owner holds title to their fractional share, receives their proportionate share of income and tax items (depreciation, expenses), and can generally transfer their interest subject to the agreement and any lender requirements. A master lease or management agreement often handles day-to-day operations so co-owners aren't individually managing the property.
The structure aims to give investors direct real-property ownership (qualifying for 1031) while pooling them into an institutional asset with professional management. The TIC agreement and the financing arrangement are the key documents to understand, because they define your rights, obligations, and the decision-making rules.
Income, Taxes, and Reporting in a TIC
As a TIC co-owner, you receive your proportionate share of the property's rental income and report your share of income, expenses, and depreciation — generally on Schedule E, similar to direct property ownership. Because a TIC is direct real-property ownership, the tax treatment mirrors owning a fraction of the building directly.
Your carryover basis from the relinquished property follows into your TIC interest, preserving the deferred gain. You continue to benefit from depreciation on your share, and any debt on the property is allocated to you proportionately, which is part of how a TIC can help replace your relinquished debt.
When the property is eventually sold, you receive your share of the proceeds and gain, and you can do another 1031 exchange on your TIC interest if you wish — continuing to defer. The tax mechanics parallel direct ownership, which is part of the TIC's appeal for investors who want that direct treatment.
Diligencing a TIC Investment
Diligencing a TIC requires evaluating the property, the sponsor, the financing, and the co-ownership structure. Assess the property's quality, location, tenants, and projected income as you would any real estate, and the sponsor's track record and fees as you would a DST sponsor.
The TIC-specific diligence focuses on the agreement and the co-owners: the decision-making rules (and deadlock risk), the financing structure and your obligations under it, the management arrangement, the transfer restrictions, and — to the extent possible — the quality and alignment of your co-owners, since their financial problems can affect the group.
Because TICs add co-ownership and financing complexity to ordinary real-estate risk, the diligence is more involved than for a DST. An advisor experienced with both structures can help you evaluate a TIC and compare it against DST alternatives that might serve your goals more simply.
Is a TIC Right for Your Exchange?
A TIC is right when you specifically value direct deeded ownership and a vote in the property, are co-investing with known partners or want a particular structure, and accept the added complexity and deadlock risk. It gives more control than a DST in exchange for that complexity.
It's less suitable when you want maximum simplicity and passivity, easy debt replacement without co-owner financing, certainty of decision-making without deadlock risk, or the smaller minimums and easier estate division a DST offers — which is most exchangers.
Because TICs are now a specialized niche, work with an advisor who understands both TIC and DST structures and can assess which fits your goals. For the typical fractional exchange, a DST is usually simpler; the TIC is for when its direct-ownership features genuinely matter to you.
Frequently Asked Questions
What is a tenants-in-common (TIC) 1031 exchange?
A 1031 exchange into a TIC interest — direct, deeded fractional co-ownership of a larger property by up to 35 investors. Because it's direct real-property ownership, a TIC interest qualifies as like-kind replacement property, giving you a fractional deeded interest in an institutional-quality asset.
What's the difference between a TIC and a DST?
A TIC gives co-owners direct deeded title and voting rights but complicates financing (lenders underwrite multiple owners) and decisions (which can require unanimous consent and risk deadlock). A DST is a trust where the sponsor manages everything and pre-arranges non-recourse debt — simpler, passive, but no control. Most modern fractional exchanges use DSTs.
Can a TIC interest be 1031 replacement property?
Yes. A TIC interest is direct ownership of real property and qualifies as like-kind replacement property in a 1031 exchange. IRS guidance (Rev. Proc. 2002-22) clarified when a co-ownership arrangement is treated as a TIC rather than a partnership.
Why did DSTs become more popular than TICs?
DSTs simplify financing (debt arranged once at the trust level), avoid TIC decision-making deadlock (the sponsor decides), have no 35-investor limit (allowing smaller minimums), and offer a fully passive experience that's easier to divide among heirs. These advantages led the market to shift from TICs to DSTs.
How many investors can be in a TIC?
Up to 35 co-owners for 1031 purposes. Each holds an undivided fractional interest with a deeded share and a vote on major decisions. The 35-investor limit (versus a DST's effectively unlimited investors) is one reason TIC minimums were higher and the structure less flexible.
What is the decision-making risk in a TIC?
Major decisions (selling, refinancing, capital expenditures) often require unanimous or supermajority co-owner consent under the TIC agreement, creating the risk of deadlock if co-owners disagree. This deadlock risk is a key downside of TICs and a major reason DSTs, where the sponsor decides, became preferred.
Is TIC financing harder than DST financing?
Yes. TIC financing requires lenders to underwrite multiple co-owners and structure debt across them, which is complex. A DST arranges non-recourse debt once at the trust level, requiring no individual qualification — a major advantage for exchangers replacing leverage.
Do I get a vote in a TIC?
Yes. As a TIC co-owner you have a vote on major decisions about the property, which some investors value. This direct involvement is a key difference from a DST, where investors are passive and the sponsor makes all decisions. The trade-off is the risk of deadlock among co-owners.
Can I sell my TIC interest?
Generally yes, subject to the TIC agreement and any financing restrictions, but the secondary market for individual TIC interests is limited, making them illiquid. Like DSTs, TICs are best held for the full investment period rather than sold early.
What is Rev. Proc. 2002-22?
IRS guidance that clarified when a co-ownership arrangement is treated as a tenants-in-common interest (direct real-property ownership eligible for a 1031) rather than a partnership (an entity interest that isn't 1031-eligible). It enabled sponsored TIC programs for 1031 investors in the early 2000s.
When does a TIC make more sense than a DST?
When you specifically want direct deeded ownership, a vote on the property, or a particular financing or ownership structure a DST doesn't offer — and accept the complexity and deadlock risk. Some larger investors or those co-investing with known partners prefer it. For most fractional exchanges, a DST is simpler.
Are TICs still used today?
Yes, but in a smaller, specialized niche. DSTs dominate the fractional 1031 market for their simplicity, but TICs still exist and suit investors who specifically value direct title, voting rights, or particular structures. The market shifted to DSTs after the 2008–2009 period, but TICs remain available.
What are the risks of a TIC investment?
Co-owner deadlock and disputes, financing complexity, a co-owner's financial problems affecting the group, limited liquidity, and dependence on the sponsor and property manager — plus the usual real-estate risks. These are why TICs require careful diligence of the property, sponsor, TIC agreement, financing, and co-owners.
Can a TIC be divided among heirs?
A TIC interest can be passed to heirs, but a DST's beneficial interests are generally easier to divide cleanly among multiple heirs. This estate-division advantage is one more reason many investors favor DSTs for the passive, divisible fractional ownership that eases estate planning.
Is a TIC right for my exchange?
It's right if you specifically value direct deeded ownership and a vote, are co-investing with known partners or want a particular structure, and accept the complexity and deadlock risk. For most exchangers seeking simple, passive, diversified fractional replacement, a DST is usually the better fit.
How is a TIC investment structured?
A sponsor acquires a property, places financing, and sells deeded undivided interests to up to 35 investors, with a TIC agreement governing rights, management (usually professional), and decision-making. Each co-owner holds title to their share and receives proportionate income and tax items. The agreement and financing are the key documents to understand.
How is TIC income taxed?
You report your proportionate share of income, expenses, and depreciation, generally on Schedule E — similar to direct property ownership, since a TIC is direct real-property ownership. Your carryover basis follows into the TIC interest, and you continue to benefit from depreciation on your share.
Can I do another 1031 on my TIC interest later?
Yes. Because a TIC interest is direct real-property ownership, you can exchange it under Section 1031 when the property is sold or when you wish to exit, continuing to defer the gain. This is the same as exchanging any investment real property.
What documents govern a TIC?
The TIC agreement (rights, management, decision-making, transfer restrictions) and the financing documents (your obligations under any shared debt) are the key ones, along with the usual property and offering materials. Understanding the decision-making rules and your financing obligations is essential before investing in a TIC.
How do I diligence a TIC investment?
Evaluate the property (quality, location, tenants, income), the sponsor (track record, fees), the financing (structure and your obligations), and the co-ownership (decision rules and deadlock risk, transfer restrictions, and your co-owners). TICs add co-ownership and financing complexity to ordinary real-estate risk, so the diligence is more involved than for a DST.
Can a co-owner's problems affect my TIC investment?
Potentially, yes — especially with shared financing, where a co-owner's default or financial trouble can affect the group, or where co-owner disputes cause deadlock. This interdependence is one reason DSTs (where investors are passive and independent of one another) became preferred for fractional exchanges.
Does a TIC come with professional management?
Usually. A sponsor-assembled TIC typically includes a professional property manager (often under a master lease or management agreement), so co-owners aren't individually managing the property day-to-day. The co-owners' role is in major decisions, not daily operations.
Is a TIC or DST better for replacing debt?
A DST is generally easier — its non-recourse debt is arranged once at the trust level, requiring no individual qualification. A TIC allocates debt to co-owners proportionately, but the financing requires underwriting the co-owners, which is more complex. For straightforward debt replacement, the DST's pre-arranged loan is simpler.
Can I refinance or sell a TIC interest?
Selling an individual TIC interest is possible subject to the TIC agreement and lender requirements, but the secondary market is limited, making it illiquid. Refinancing involves the co-owners and lender collectively. Like DSTs, TICs are best held for the full investment period rather than exited early.
Do all 35 TIC co-owners have to agree on decisions?
For major decisions, the TIC agreement often requires unanimous or supermajority consent, which is why deadlock is a risk. Day-to-day operations are usually handled by a professional manager under a management agreement, so co-owners aren't voting on routine matters — only major ones like selling or refinancing.
How is a TIC different from a partnership?
A TIC is direct co-ownership of real property (each co-owner holds deeded title and is treated as owning a fraction of the building directly), which qualifies for a 1031. A partnership is an entity, and a partnership interest is an entity interest that generally doesn't qualify. IRS Rev. Proc. 2002-22 clarifies when a co-ownership is a TIC rather than a partnership.
Are TICs riskier than DSTs?
They carry some additional structural risks — co-owner deadlock, the interdependence of shared financing, and a co-owner's problems affecting the group — on top of the usual real-estate and sponsor risks both share. DSTs avoid the co-owner risks by making investors passive and independent. Whether a TIC is right depends on whether you value its direct ownership and voting rights enough to accept those added risks.
Why are TICs limited to 35 investors?
IRS guidance (Rev. Proc. 2002-22) set conditions, including a co-owner limit, for a co-ownership to be treated as a TIC rather than a partnership for 1031 purposes. The 35-investor cap, combined with the financing and decision-making complexity, made TIC minimums higher and contributed to the market's shift toward DSTs, which have no such practical limit.
Glossary
- Tenants-in-Common (TIC)
- Direct fractional co-ownership of a property by multiple investors (up to 35 for 1031), each with a deeded undivided interest and a vote.
- Undivided Interest
- A fractional ownership share of the whole property, not a specific physical portion.
- TIC Agreement
- The contract governing the co-owners' rights, management, and decision-making in a TIC.
- Unanimous Consent
- A requirement that all co-owners agree on major decisions, common in TICs and a source of deadlock risk.
- Delaware Statutory Trust (DST)
- A trust holding title to property and issuing passive fractional interests; the more common modern fractional option.
- Rev. Proc. 2002-22
- IRS guidance clarifying when a co-ownership is treated as a TIC rather than a partnership for 1031 purposes.
- Rev. Rul. 2004-86
- The IRS ruling treating a DST interest as direct real-property ownership for 1031 purposes.
- Deadlock
- A stall in TIC decisions when co-owners can't reach the required consent, potentially harming all.
- Non-Recourse Debt
- Debt secured only by the property without personal liability — arranged at the trust level in a DST.
- Secondary Market
- A limited, often illiquid market for reselling fractional interests like TICs or DSTs.
- Sponsor
- The firm that assembles and manages a TIC or DST program.
- Fractional Ownership
- Owning a share of a larger property through a TIC or DST.
Sources & References
- IRS. Like-Kind Exchanges — fractional interests
- IPX1031. TIC and DST replacement options
- Baker 1031 Investments. Delaware Statutory Trusts strategy
- JTC Group. 1031 and Real Estate: Answers to Common Questions
Disclosures
This article is published by Baker 1031 Investments, LLC for general educational purposes for accredited investors and is not an offer to sell or a solicitation of an offer to buy any security, nor is it tax, legal, accounting, or investment advice or a recommendation. Any securities offering is made solely through a sponsor’s private placement memorandum (PPM) following a suitability determination. Securities offered through Aurora Securities, Inc. (ASI), member FINRA / SIPC; Baker 1031 Investments is independent of ASI.
Oil & gas mineral and royalty interests and DST programs are speculative, illiquid securities sold only to verified accredited investors and involve substantial risk, including possible loss of principal, commodity-price and production-decline risk, lack of control, and the risk that an intended 1031 exchange fails to qualify for tax deferral. Whether a particular interest qualifies as like-kind real property is a fact-specific legal determination that varies by state and by the terms of the instrument. Tax results depend on your individual circumstances. Consult your own CPA and attorney before acting. Past performance does not guarantee future results.
