Tenants in common, or TIC, ownership lets multiple 1031 exchangers each hold a direct, undivided fractional interest in a single property, with each owner on title individually rather than through a trust. That direct-title feature is the key difference from a DST: a TIC owner is a co-owner of the actual real estate, with rights and obligations closer to a traditional co-ownership arrangement, while a DST investor holds a beneficial interest in a trust that owns the property.
Revenue Procedure 2002-22 set out the IRS guidelines that sponsors use to structure TIC offerings so each co-owner's interest is respected as direct real property ownership for 1031 purposes, rather than being recharacterized as an interest in a partnership, which would disqualify it as like-kind property.
Revenue Procedure 2002-22 generally limits a TIC offering to no more than 15 co-owners, a threshold meant to keep the arrangement from functioning like a partnership in practice even though it is not one in form. Beyond investor count, the guidance also expects co-owners to hold title individually, share proportionally in revenue and expenses, and avoid the group acting through a single elected manager the way a partnership would through a managing partner.
A TIC structured outside these guidelines risks being treated by the IRS as a partnership interest rather than direct real property, which would fail the like-kind requirement entirely — a determination you do not want made after your exchange has already closed.
Because each TIC owner holds a direct interest rather than a security governed by a single sponsor's discretion, major decisions — refinancing, a new lease with a material tenant, or a sale of the property — typically require unanimous or near-unanimous consent among all co-owners under the co-tenancy agreement. One owner who wants to sell and another who wants to hold can deadlock the property, with no built-in mechanism to force a resolution the way a DST's trustee structure provides.
Read the co-tenancy agreement's buy-sell and deadlock provisions before committing capital. A well-drafted agreement includes a mechanism — a right of first refusal, a forced-sale process, or a buyout formula — for resolving disagreement; a poorly drafted one leaves owners stuck negotiating from scratch if consensus breaks down.
Lenders generally underwrite the property as a whole rather than each co-owner separately, which means your creditworthiness is bound up with your co-owners' in a way a DST investor never experiences, since DST-level debt does not require individual investor guarantees. Some TIC loans require joint and several liability among all co-owners, meaning a lender could pursue any single owner for the full loan balance if the property defaults, regardless of that owner's fractional share.
Review the loan documents, not just the co-tenancy agreement, to understand exactly what liability you are taking on relative to your ownership percentage before you close.
A TIC interest is direct ownership, so property management, leasing decisions, and capital planning remain the co-owners' collective responsibility, typically delegated to a property manager the group selects and can also replace. This gives TIC owners more control than DST investors have, at the cost of more active involvement and more exposure to disagreements among co-owners about how the property should be run.
Decide, before you invest, how much active involvement you actually want. Investors drawn to TIC ownership specifically for the control it offers over DST's passivity should confirm the co-tenancy agreement genuinely preserves that control rather than delegating everything to a sponsor-selected manager with limited owner oversight.
TIC ownership fits an investor who wants a direct property interest, is comfortable coordinating with a small group of co-owners, and values retaining some decision-making authority over passivity. A DST fits an investor who wants none of that coordination and is willing to trade control for administrative simplicity and typically non-recourse financing that does not expose an individual investor to joint liability.
Both structures qualify as like-kind replacement property when properly formed, so the choice comes down to how much involvement and shared liability you are willing to accept in exchange for the control a direct interest provides.
