A tenants-in-common structure, generally called a TIC, lets multiple 1031 exchangers each hold a direct, recorded fractional deed to the same property rather than a beneficial interest in a trust that owns the property. Because each co-tenant holds actual title to an undivided percentage of the real estate, TIC ownership was the more common fractional 1031 replacement structure before Revenue Ruling 2004-86 confirmed that DST interests also qualify as like-kind property, at which point many exchangers shifted toward DSTs for the simpler closing process and single-signature loan.
The core distinction that still separates the two structures is control. A TIC co-owner typically has voting rights on major property decisions alongside the other co-tenants; a DST beneficial interest holder generally does not. That control comes with real operational responsibility that a passive DST investor does not carry.
Each co-tenant is named individually on the recorded deed, typically limited to a maximum number of co-owners under Revenue Procedure 2002-22's guidelines for structuring a TIC that will be respected as real property ownership rather than a partnership interest. Financing usually requires all co-tenants to sign the loan, often with joint and several liability, meaning each individual owner can be pursued for the full loan balance if the property defaults, not just their proportional share.
This lender requirement is one of the more consequential differences from a DST: a DST investor's liability is generally limited to their invested capital, while a TIC co-owner who signs a loan alongside other owners has personal exposure tied to the full debt, regardless of their fractional ownership percentage.
Major decisions, refinancing, selling the property, approving a new lease, or removing the property manager, typically require unanimous or near-unanimous consent among TIC co-owners under the co-tenancy agreement, since each owner holds an independent property interest rather than a share in a single managing entity. This structure gives each co-owner genuine influence over the property's direction, but it also means a single dissenting co-tenant can block a decision the rest of the group wants to make, a dynamic that has caused real friction in TIC groups when co-owners disagree about refinancing timing or a sale price.
Before entering a TIC, reviewing the co-tenancy agreement's decision-making and buyout provisions matters as much as reviewing the property itself, since those provisions determine what happens when co-owners disagree.
Because each co-tenant holds direct title and often a vote on management decisions, a TIC generally requires more active engagement than a DST interest, where the sponsor or trustee makes those calls without investor input. Exchangers drawn to fractional real estate ownership specifically because they are done actively managing property may find the coordination required among TIC co-owners closer to the management burden they were trying to leave behind, just spread across more people.
The trade is meaningful: a TIC co-owner retains direct deeded ownership and voting influence, while a DST investor accepts passive, non-voting ownership in exchange for freedom from that coordination.
Revenue Procedure 2002-22 sets out conditions the IRS looks to when evaluating whether a TIC arrangement is respected as direct co-ownership of real property, rather than reclassified as a partnership interest that would not qualify for 1031 treatment: limits on the number of co-owners, restrictions on the co-tenancy agreement's terms, and requirements around unanimous consent for major decisions among them. A TIC that drifts too far from these guidelines, for example by giving one manager broad discretionary authority that functions like a general partner, risks having the IRS treat it as a partnership interest, which is not like-kind real property.
Confirming that a specific TIC offering's documents follow this guidance is diligence work that should happen before committing exchange proceeds, not after.
An exchanger who wants a direct vote on major property decisions, is comfortable with joint and several loan liability, and is willing to coordinate with other co-owners may prefer a TIC. An exchanger who wants passive ownership, capped liability tied to invested capital, and no coordination burden with other investors will generally find a DST interest a better fit for the same size of allocation. Either structure requires review of the specific offering or co-tenancy agreement, since terms vary meaningfully between sponsors and deals.