Tenancy in Common (TIC) Structures in Commercial Real Estate

A tenancy in common is a form of co-ownership where each co-owner holds an undivided fractional interest in the whole property rather than a specific physical portion of it. Each interest is separately deeded, can be sold or transferred independently, and carries a proportional right to income and to proceeds on sale.

How a TIC Structure Works

Tenancy in common (TIC) is a co-ownership structure in which two or more investors each hold a separate, undivided interest in the same property. Since each owner holds a direct property interest, a TIC interest can serve as 1031 replacement property, letting investors defer capital gains tax.What makes a TIC distinct is that each investor owns real property directly, not a share of an entity that owns the property.

In a TIC, every co-owner holds title to an undivided interest, meaning each owns a percentage of the entire asset rather than a defined room or floor. The interests need not be equal, and each can be financed, sold, or passed to heirs independently. Decisions about the property are typically governed by a co-ownership or management agreement that the parties sign, since direct co-ownership without one can become unwieldy.

This direct-ownership feature is the crux. Since a TIC owner holds an interest in real property itself, rather than a membership interest in a limited liability company or a partnership. The interest is treated as real estate for several purposes, including the tax rules that govern exchanges.

TIC structures gained prominence after the IRS issued guidance clarifying; when a co-ownership interest qualifies as real property eligible for like-kind exchange treatment rather than as an interest in a partnership. That clarity opened the door for securitized TIC offerings, in which a sponsor assembles co-owners into a single larger property. Though such offerings carry their own securities and management considerations.

Financing a TIC interest has its own wrinkles. Since each co-owner holds a separate interest, lenders may underwrite the group and the property together. Also some of the loans require all co-owners to be party to the debt. These arrangements are spelled out in the loan and co-ownership documents, and they are part of why entering a TIC calls for careful review of how the financing binds the owners together.

TIC and the 1031 Exchange

The connection to 1031 exchanges is the main reason TIC structures attract real estate investors.

A 1031 exchange, named for the section of the tax code, lets an investor defer capital gains tax by exchanging investment real property for other like-kind real property. For tax years after 2018, this treatment applies only to real property held for business or investment. Because a TIC interest is a direct interest in real property, it can serve as qualifying replacement property in a 1031 exchange, which a security or an entity interest generally cannot.

It is important to be precise about the tax benefit. A 1031 exchange is tax-deferred, not tax-free. The deferred gain carries forward into the basis of the replacement property and is recognized later if that property is sold without another exchange. Strict timelines and the use of a qualified intermediary are required, and the rules are detailed. Therefore, the structure is one to execute with professional guidance rather than from a summary.

The 1031 timeline is unforgiving, which shapes how TIC interests are used. An investor generally has a short window to identify replacement property and a longer but still fixed period to close. This ensures that a pre-packaged TIC interest in an already-identified asset can be attractive simply because it can close within those deadlines. Missing a deadline collapses the deferral, so execution speed is part of the appeal.

TIC vs Entity Ownership

(Source: IRS, Instructions for Form 8824 (Like-Kind Exchanges))

TIC and entity ownership solve different problems. TIC preserves direct real property ownership and 1031 eligibility, while an LLC or partnership offers simpler centralized management and liability features. The right choice depends on whether tax-deferred exchange treatment is a goal.

The choice is rarely about the cost alone. An investor focused on tax-deferred exchange treatment leans toward direct interests like a TIC. While one prioritizing simple, centralized management and limited liability may prefer an entity and forgo 1031 eligibility. Naming the primary goal first makes the structure decision far clearer than weighing features in the abstract.

Benefits and Risks of TIC

TIC structures carry clear benefits and equally clear drawbacks.

On the benefit side, TIC allows fractional access to larger properties, preserving 1031 eligibility. Furthermore, it also lets each owner manage their interest independently, including financing and estate planning. It can let an investor moving out of one property defer gains by exchanging into a fractional interest in a larger, professionally managed asset.

On the drawback side, decision-making among many co-owners can be slow, since major actions often require broad or unanimous consent. Each owner is exposed to the others' financial situations in some respects, financing can be more complex. Also, the number of co-owners in a TIC used for securitized offerings has historically been limited. These frictions are why a well-drafted co-ownership agreement is essential.

A related structure, the Delaware Statutory Trust, has become a common alternative for 1031 investors seeking passive fractional ownership. A trust can hold many investors while still qualifying as replacement property and removes the unanimous-consent frictions of a traditional TIC. Investors moving into fractional real estate through a 1031 often compare TIC and trust structures on management, investor count, and control.

How TIC Is Used in Practice

In practice, TIC structures serve a few recurring purposes for real estate investors.

The most common is completing a 1031 exchange into a larger, professionally managed asset than the investor could buy alone, deferring gains while stepping into a more passive role. TIC is also used among partners and family members who want to hold property together. Meanwhile keeping their interests separate for financing, transfer, or estate purposes. In both cases the appeal is direct ownership combined with shared scale.

The structure rewards clear agreements. Since co-owners depend on one another for major decisions, a well-drafted management and co-ownership agreement, covering voting, sale, financing. In addition, what happens if one owner wants out, is what keeps a TIC workable over a multi-year hold.

Where Node Proptech Fits

Node Proptech is building the compliance-native infrastructure for fractional real estate. Node does not tokenize deeds. We digitize ownership interests in legally structured real estate entities. Node's structure holds each asset in a special purpose vehicle, and investors hold interests in that entity rather than direct deeded interests in the property, which is a different model from a TIC.

That distinction matters for an investor's goals. Node's structure is built for verified eligibility, enforced transfer rules, and secondary eligibility under the securities framework, rather than for 1031 exchange treatment - which generally depends on holding direct real property. An investor whose specific objective is a 1031 exchange should understand this difference and seek tax advice. Each offering discloses its structure, accreditation is verified before access, and the current pilot is Victory Villas in Oklahoma City.

This article is for general information and is not tax or legal advice. The rules governing TIC structures and 1031 exchanges are complex and fact-specific, so consult a qualified tax professional before acting.

Frequently Asked Questions

What is “tenancy in common” in real estate?

Tenancy in common is a co-ownership structure where two or more investors each hold a separate, undivided interest in the same property. Each interest is independently owned and transferable, and each owner has a proportional right to income and to sale proceeds.

How does a TIC interest relate to a 1031 exchange?

Because a TIC interest is a direct interest in real property rather than a share of an entity, it can serve as qualifying replacement property in a 1031 like-kind exchange. This lets an investor defer capital gains tax by exchanging one investment property for a fractional interest in another.

Is a 1031 exchange tax-free?

No. A 1031 exchange is tax-deferred, not tax-free. The gain is carried forward into the basis of the replacement property and is recognized later if that property is sold without another qualifying exchange. The rules also require strict timelines and a qualified intermediary.

How is a TIC different from owning through an LLC?

In a TIC, each investor holds direct title to an undivided real property interest, which supports 1031 eligibility. In an LLC or partnership, investors hold an entity interest, which is simpler to manage centrally but generally does not qualify for like-kind exchange treatment.

What are the drawbacks of a TIC structure?

Decision-making among multiple co-owners can be slow, often requiring broad consent, financing can be more complex, and owners are exposed to one another in some respects. A clear co-ownership agreement is essential to manage these frictions.