TIC vs. DST: Which 1031 Replacement Property Fits You?
You sold an investment property, you want to keep deferring your gain under Section 1031, and you would rather not manage another building yourself. Two fractional ownership structures come up again and again: a tenants-in-common (TIC) interest and a Delaware Statutory Trust (DST). Both can serve as like-kind replacement property, but they are built differently, and the differences affect your control, your financing, and how passive the investment really is. Here is how they compare.
The short version: a TIC gives you direct, deeded co-ownership with voting rights, but more complexity and a cap on the number of owners. A DST gives you a hands-off beneficial interest in a trust that owns the property, with lower minimums and simpler debt replacement, but no day-to-day control. Both qualify for a 1031 exchange. Which one fits depends on how much control you want and how passive you need the investment to be.
What a Tenants-in-Common (TIC) Interest Is
A TIC interest is direct co-ownership of real estate. You receive a deed for an undivided fractional share of the property and hold it alongside other investors. The IRS addressed when a TIC interest qualifies as replacement property for a 1031 exchange in Revenue Procedure 2002-22, which describes conditions such as limiting the arrangement to no more than 35 co-owners and generally requiring co-owner consent for major decisions. Because you hold title directly, you typically have voting rights on big decisions like selling or refinancing, and you receive your share of the income and expenses.
What a Delaware Statutory Trust (DST) Is
A DST is a legal trust that holds title to the property. Instead of a deed, you own a beneficial interest in the trust. In Revenue Ruling 2004-86, the IRS confirmed that a beneficial interest in a DST is treated as a direct interest in real estate, so it qualifies as like-kind replacement property for a 1031 exchange. The tradeoff is control. To preserve that tax treatment, the trustee operates under strict limits (sometimes called the “seven deadly sins”), and investors cannot vote on day-to-day management. A DST is a passive, professionally managed investment. DSTs are securities, offered only to accredited investors through a Private Placement Memorandum.
The Key Differences
Control. TIC owners have voting rights and a say in major decisions. DST investors are passive and rely on the sponsor and trustee.
Number of investors and minimums. A TIC is generally limited to 35 co-owners, which tends to mean larger minimum investments. A DST can hold many more investors, so minimums are usually lower and the interest is easier to buy in smaller amounts.
Financing. In a TIC, lenders may require each co-owner to qualify for and sign on the loan, which can be cumbersome. In a DST, financing is arranged at the trust level and is typically non-recourse to investors, so you are not personally underwritten. That also makes it easier to match the debt you are replacing in your exchange.
Decision-making friction. Because major TIC decisions often need co-owner consent, a single holdout can complicate a sale or refinance. A DST removes that friction by centralizing decisions with the trustee, at the cost of your own say.
A Simple Scenario
Suppose you are exchanging out of a rental with $500,000 of equity and a $300,000 mortgage to replace. To fully defer your gain, your replacement property generally needs to carry at least as much value and debt.
In a TIC, you would take title to a fractional share alongside up to 34 other owners. You might need the lender to approve you individually, and major decisions would run through the co-owner group.
In a DST, you would buy a beneficial interest sized to your equity. The trust already holds non-recourse financing, which can help satisfy the debt-replacement requirement without putting the loan in your name. You would receive your share of any distributions passively, with no management role.
Neither is automatically better. The TIC gives you ownership control, while the DST gives you simplicity and a lighter financing path.
Which One Fits You
Lean toward a TIC if direct title, voting rights, and a say in the property matter to you, and you are comfortable coordinating with a small group of co-owners. Lean toward a DST if you want a truly passive investment, a lower minimum, and simpler debt replacement, and you are an accredited investor comfortable holding a security rather than a deed. Some investors also keep a DST as a backup identification in their 45 days, since DST interests can often close quickly.
The Bottom Line
TIC and DST interests are two paths to the same goal: a fractional, like-kind replacement property that keeps your 1031 exchange intact. The TIC route offers control and direct ownership with more coordination and financing complexity. The DST route offers a passive, securitized interest with lower minimums and non-recourse debt, but no operational control and the fees and risks that come with a securities investment. The right choice depends on how much control you want, how passive you need to be, and your financing situation.
Deciding between a TIC and a DST for your exchange? Talk to a Specialist about your equity, your debt, and your timeline, and use the free 1031 Calculator to track your 45-day and 180-day deadlines.
This article is for informational and educational purposes only and is not tax, legal, or investment advice. My1031Options.com is an educational resource published by Medalist Diversified, Inc. (NASDAQ: MDRR), a publicly traded company and DST sponsor. This is not an offer to sell or a solicitation of an offer to buy any security. Securities are offered only by means of a Private Placement Memorandum (PPM) and only to accredited investors as defined in Rule 501 of Regulation D under the Securities Act of 1933. All investments involve risk, including the possible loss of principal. Consult your own CPA, tax attorney, and qualified financial professional before selling investment property or executing a 1031 exchange.
