Understanding Tenant-in-Common (TIC) Structures

What Is a TIC?

A tenant-in-common (TIC) structure allows multiple investors to co-own undivided fractional interests in a single parcel of real property. Each owner holds a direct interest in the entire property rather than a specific unit, and ownership percentages may differ among co-owners.

TIC interests have historically been used within 1031 exchange frameworks as a way to acquire replacement property interests that may meet like-kind requirements. The IRS issued Revenue Procedure 2002-22 to establish the conditions under which a TIC interest is treated as direct real property ownership — rather than a partnership interest — for exchange purposes.

The Rev. Proc. 2002-22 Safe Harbor

Revenue Procedure 2002-22 sets out 15 conditions under which the IRS will not treat a TIC arrangement as a partnership. Meeting these conditions is what allows a TIC interest to qualify as like-kind replacement property in a 1031 exchange. Key conditions include:

• Maximum of 35 co-owners in the TIC arrangement.
• Each co-owner must hold title (directly or through a nominee) as a tenant-in-common.
• No co-owner may be treated as an employee of another co-owner or of a sponsor.
• Co-owners must have the right to approve major decisions (sale, refinance, leasing) unanimously or by a majority.
• The sponsor may not hold more than a specified interest and must retain risk of loss.
• No co-owner may have the right to require the others or the sponsor to buy their interest.

How Ownership Works

Each tenant-in-common owner holds an undivided interest in the entire property rather than a specific unit or portion. Ownership percentages, voting rights, and responsibilities are governed by a TIC agreement that defines how decisions are made, how income is distributed, and how a sale or refinance would be handled.

Decisions affecting the property — such as a sale, refinancing, or major lease — are generally made collectively according to the terms of the agreement and applicable state law. Day-to-day management is typically delegated to a property manager or sponsor under a management agreement.

TIC vs. DST vs. Direct Ownership

TICs are one of several fractional structures used in 1031 transactions. The table below compares the defining characteristics of each. A Delaware Statutory Trust (DST) holds title through a trust structure rather than direct co-ownership, and a 721/UPREIT converts property into partnership units rather than real property interests.

Potential Benefits

TIC structures may provide access to institutional-grade properties that would be impractical to acquire individually, potential diversification across multiple properties or geographies, and the ability to acquire replacement property interests within the 180-day exchange window.

Because each investor holds a direct interest, a TIC may also preserve the ability to eventually sell, exchange, or gift the interest independently, subject to the TIC agreement and market conditions.

Important Considerations

TIC investments involve co-ownership risk, limited control over day-to-day decisions, illiquidity, and reliance on the performance of the underlying property and management. Fees — including sponsor, financing, and transaction costs — can be significant and should be disclosed in offering documents.

If a TIC is inadvertently structured as a partnership, the interest may not qualify as like-kind property for 1031 purposes, which is why adherence to Rev. Proc. 2002-22 and review by qualified tax counsel is critical.

Frequently Asked Questions

Do TIC interests qualify for 1031 exchange treatment?

TIC interests structured in accordance with the safe harbor of Rev. Proc. 2002-22 have historically been treated as like-kind real property for 1031 purposes. Whether a specific interest qualifies depends on its structure and current guidance, and should be reviewed with tax counsel.

How is income distributed?

Distributions are generally made according to each owner's percentage interest, subject to the terms of the TIC agreement and the property's cash flow.

Can I sell my TIC interest separately?

A TIC interest may be sold independently, subject to the TIC agreement, securities laws, and marketability constraints. Liquidity is typically limited.