Tenants In Common Frequently Asked Questions

1. What is Tenants-in-Common (TIC)?
2. What purchase amounts are ordinarily required for Tenants In Common ownership?
3. What happens if fail to close on my 1031 exchange?
4. Is there any liability exposure associated with Tenants In Common ownership?
5. What if I want to sell my Tenants In Common ownership?
6. What happens to my Tenants In Common ownership if I die?




1. What is Tenants-in-Common (Tenants In Common)?

A Tenants In Common is a form of real estate asset ownership in which two or more persons have an undivided, fractional interest in the asset, where ownership shares are not required to be equal, and where ownership interests can be inherited. Each co-owner receives an individual deed at closing for his or her undivided percentage interest in the entire property. Through Tenants In Common ownership, the average person is able to enjoy ownership in an institutional-type property with a minimum investment.


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2. What purchase amounts are ordinarily required for Tenants In Common ownership?

Revenue Procedure 2002-22 issued by the IRS allows up to 35 Tenants In Common owners in any one property. Minimum purchase requirements are structured to meet this limitation and can range as low as $150,000 equity. The typical entrance in whole commercial building begins at $1 million, but through Tenants In Common ownership, the average person is able to enjoy ownership in an institutional-type property with a minimum purchase. Besides reliable income and growth potential, these properties are able to attract tenants with greater financial strength and stability than possible for the individual landlord.


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3. What happens if fail to close on my 1031 exchange?

You will have to pay your capital gains taxes. Failure to close is the top reason clients reveal as to why they pay capital gains. By identifying a Tenants In Common property, you can reduce your potential tax risk, and avoid a failed closing. If you fail to close on other identified properties, you are able to move all your proceeds into the Tenants In Common property you identified.


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4. Is there any liability exposure associated with Tenants In Common ownership?

The mortgages on most of the Tenants In Common properties are non-recourse. The Tenants In Common debt structure generally allows for the debt financing to assumed. Assumption usually occurs without the need for qualification or loan assumption fees.


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5. What if I want to sell my Tenants In Common ownership?

On a decision requiring unanimous vote, such as a sale decision, a 75% vote by the Tenants In Common owners will typically be sufficient to initiate the impasse resolution procedure. This procedure allows the Tenants In Common owners with 75% or more of the property to make an offer to buyout the dissenting owner with 25% or less of the property. The dissenting Tenants In Common owners can either: (1) accept this offer, (2) buy out the 75% Tenants In Common owners at the same price per percentage ownership, or (3) change their dissenting vote to a consenting vote.


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6. What happens to my Tenants In Common ownership if I die?

Your ownership interest will pass to your heirs pursuant to your will just like any other asset. Currently, the estate tax code provides that they will also receive a stepped-up tax basis to fair-market value, but you should check with your CPA or tax adviser because not all circumstances are alike. The income taxes which were deferred because of your 1031 exchange are potentially forgiven forever.

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