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"TIC" is the abbreviation for tenant-in-common. Tenant-in-common
simply means joint ownership of real estate.
Tenants in common are all named on the deed to the property, and their interests are indicated as specific percentages such as "John Jones, Mary Smith and Tom Brown, each as to an undivided one-third interest, as tenants in common". Sometimes a property owner will create a tenancy
in common by transferring a percentage interest in the property to
another. Such a deed might show the transferee (grantee) as the new tenant in common co-owner, and the legal description might read "a one-half undivided interest in . . . (followed by the legal description of the entire property)".
A
TIC percentage interest in real estate has always been recognized as qualified property for 1031 Exchanges, but for years TIC's were not widely used. However, in 2002, IRS approved the use of "sponsored" TIC's as 1031 Exchange replacement properties. In a sponsored TIC, a real
estate company (referred to as the sponsor) arranges a syndication by locating and placing
a property under contract and then, either before closing on the purchase or
after closing, the sponsor offers, in a prepackaged format, fractional
interests in the property to 1031 Exchangers as replacement properties. The sponsor then oversees management of the property and the 1031 Exchangers, as purchasers of the fractional interests (TIC's), receive monthly checks for their share of the net rental income of the property until the property is resold, usually in five to ten years. Upon resale of the property, the TIC's, as the purchasers of the fractional interests are often called, receive their proportionate shares of the net sale proceeds.
A TIC
interest is a passive investment because the sponsor performs all of the usual
owner and management responsibilities.
Most TIC's come prepackaged with a mortgage component to make it easy for a 1031 Exchanger who had a mortgage on his or her relinquished property to trade even or up in debt as well as equity, which of course is a requirement of 1031 Exchanges. |
