What is Tenants in Common?
Two or more people may own an undivided interest in real estate as “Tenants in Common”. This is a form of ownership where each individual or entity owns a share or percentage of the property. TIC property owners do not have a right of survivorship meaning that, if one party dies, their ownership interest does not automatically pass to the remaining TIC owners and they can designate non-property owners to inherit their interests upon death. TIC owners do not have ownership of specific areas of a property; all owners have interests in the entire property based on the respective amounts that they originally invested. Ownership interests do not need to be equal. Mary might own 40% of the property and Joe could own 60% of the property.
1031 Exchange and Tenants in Common
An exchanger may choose to purchase replacement property as Tenants in Common with other co-owners. The exchanger’s share or percentage ownership in the replacement property must be equal or greater in value than their sale property.
Example: John and Sarah, a married couple, do an exchange and sell their relinquished property for $500,000. They choose to buy into a replacement property with other co-owners as Tenants in Common. The replacement property is $1,000,000. John and Sarah purchase an undivided 50% interest in the property worth $500,000. They have fulfilled the value requirement for their 1031 exchange and now own a fractional ownership in real estate.
Examples of Tenants in Common Vesting
Michael and Jennifer, husband and wife, as to an undivided 50% interest and Richard, an unmarried man, as to an undivided 50% interest as Tenants in Common
Gabe, an unmarried man, as to an undivided 25% interest, and Katie, an unmarried woman, as to an undivided 25% interest, and Chris and Stacy, husband and wife, as to an undivided 50% interest as Tenants in Common
ABC, LLC, as to an undivided 70% interest and Bob, an unmarried man, as to an undivided 30% interest as Tenants in Common