Tenants In Common Definitions

Written by Linda Alexander
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When tenants in common property (TIC) is arranged correctly, it can be used for relinquished and replacement property under IRC Section 1031. Since 2002, the IRS has recognized TIC arrangements as valid investment properties, and therefore, they can be exchanged just like any other real properties. Since that ruling, fractional ownership of commercial real estate has grown tremendously.

TIC ownership programs allow individuals who might not otherwise have access to the commercial real estate market, to buy interests in commercial real estate. A small group of single owners can invest in property like office buildings, apartment buildings, and shopping centers. While the secondary market for selling these interests is still small, it is growing every day.

If you would like to invest in TIC properties and potentially exchange them, be sure to understand the IRS code, because there are some pitfalls. TIC is a non-partnership arrangement, so each investor is a single owner, rather than a partner in a partnership or other entity. Every owner holds title to his or her fraction of the property. Beware of scams that say you don't need to do this--they are wrong.

IRS Requirements

The IRS ruling requires that each investor have the right to sell his or her interest(s) and the other investors cannot stop them. Every year, the investors must approve the sponsor's agreement. However, some scams require you to invest in a project for a minimum period, and must sell the property back to the sponsor when you sell. This, too, is incorrect.

When investing in TIC property, be sure to compare deals. Look at projects from different sponsors and different builders. Ask questions and use common sense. With a little experience, you will soon become a seasoned real estate investor!


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