Someone who sells a rental property or a commercial building and wants to defer the tax through a 1031 exchange soon runs into a practical question. Do they want to buy another property outright, or would they rather own a share of a larger one? Two structures come up again and again when the answer is a share: tenants-in-common interests and Delaware Statutory Trust interests. They are often mentioned in the same breath, yet they are built differently, and those differences shape control, paperwork, and risk.
This article is educational. It does not provide tax, legal, accounting, or investment advice, and it does not recommend either structure or any particular offering. Each section below is a set of topics worth raising with the licensed professionals who know your situation, such as a tax advisor, a real estate attorney, and a qualified intermediary.
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Why co-ownership comes up in a 1031 exchange at all
A 1031 exchange allows an investor to defer recognition of a gain when one piece of investment property is exchanged for another of like kind. The Wikipedia overview of like-kind exchanges outlines the general concept, and the IRS maintains its own explanations of the underlying forms and rules. The details are technical, and the timelines are strict.
Some investors reach a point where owning and managing a single property no longer appeals to them. Others find that the property they sold was worth far more than anything they could comfortably buy and manage alone. Fractional ownership interests give them a way to hold real estate without running it day to day. TIC and DST interests are the two most frequently discussed ways to do that.
The topic worth clarifying first: whether the goal is simply to defer tax, to reduce management burden, to diversify across properties, or some combination. The structure that fits one goal may fit another poorly, and your advisors will ask about the goal before anything else.
What a tenants-in-common interest is
In a tenancy in common, each owner holds an undivided fractional interest in the same real property, and each owner is generally on the deed. The Wikipedia article on tenancy in common explains the legal concept, which long predates its use in exchanges. Each co-owner can generally sell or transfer their own fraction, subject to any agreement among the owners.
Because the owners hold real property directly, decisions about the property can require their input. Depending on the agreement, major decisions such as selling, refinancing, or changing the property manager may require unanimous approval, or approval by a defined percentage. That feature is the heart of what makes TIC different from the trust alternative.
Topics to review with your real estate attorney: how many co-owners there would be, what the co-ownership agreement says about voting and deadlock, and what happens if one co-owner wants out or runs into financial trouble. These are questions about the contract, and the contract varies widely from one offering to another.
What a Delaware Statutory Trust interest is
A Delaware Statutory Trust is a legal entity that holds title to the property. Investors buy beneficial interests in the trust rather than owning a fraction of the deed directly. The Wikipedia article on the Delaware statutory trust describes the entity type, and for exchange purposes the IRS has addressed the circumstances in which an interest in such a trust may be treated as a direct interest in real property.
In a typical DST, a sponsor selects the property, arranges financing, and appoints the trustee who manages it. Investors generally do not have a vote on day-to-day matters. The trust agreement usually limits what the trustee can do, and those limits are one reason investors consider the structure to be "passive."
Topics to clarify with your tax advisor and attorney: how the trust document defines the trustee's powers, what the investor can and cannot influence, and how the offering's own materials describe the tax treatment. The offering documents, not a summary like this one, are the source to read.
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Control and decision-making compared
The difference most people notice first is control. A TIC owner usually has a say, and sometimes a veto, over major decisions. A DST investor usually does not. Each side of that trade has a cost.
More control can mean more involvement, more coordination, and more delay when co-owners disagree. Less control can mean the investor is relying on the sponsor and trustee to make the right calls without their input. Neither is automatically better. It depends on how the investor wants to spend their time and how comfortable they are delegating.
Topics to ask about: who decides when the property is sold, whether the investor can object to a decision, and what the agreement says about the investor's right to information. Reading the sections on trustee authority, or on voting thresholds, tends to answer these quickly.
Financing, liability, and the lender's view
Financing is another place where the two structures diverge. In many TIC arrangements, each co-owner may be asked to be personally involved in the loan, and lenders can be wary of loans to a group of individuals. In many DST offerings, the trust itself takes the loan on a non-recourse basis, so the individual investor is generally not asked to sign for it.
That has implications for what happens in a downturn, and for debt replacement during the exchange. A 1031 exchange often involves matching or replacing the debt on the property that was sold, a topic your tax advisor will want to model carefully. The IRS page on Form 8824 shows how the exchange is reported, including the treatment of liabilities.
Topics to review with your tax advisor and your lender or the sponsor: how much debt the replacement property carries, whether the loan is recourse or non-recourse, who is responsible if cash is needed, and how the debt compares with the debt on the property you sold. Debt questions are a common reason an exchange produces unexpected taxable "boot," which is why they deserve early attention.
Who is eligible to invest
Many DST and TIC offerings are sold only to accredited investors, a status defined by income or net worth thresholds under securities rules. The SEC's investor education site, Investor.gov, explains the definition in plain language. The Wikipedia article on accredited investors offers additional background on why the category exists.
That means the question of eligibility comes before the question of structure. If a person does not meet the definition, many offerings are simply not available to them. If they do, they will typically be asked to complete a questionnaire and sign subscription documents that describe the risks in detail.
Topics to clarify: whether you meet the definition, how the sponsor verifies it, and who is responsible for reviewing the subscription paperwork with you. Your attorney or financial professional can walk through the questionnaire, line by line.
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Timing pressure and the exchange calendar
A 1031 exchange comes with fixed deadlines. The replacement property generally must be identified within 45 days of the sale and acquired within 180 days. Those windows do not pause for due diligence, for a slow lender, or for an offering that closes its subscription period early.
Fractional interests can be easier to fit into a tight calendar, because a sponsor may already have the property under contract and be taking subscriptions. That convenience is real. It is also a reason to read carefully, since a compressed timeline can tempt people to skim the documents.
Topics to raise with your qualified intermediary and tax advisor: how the identification rules apply when you are naming an interest in a trust or a fraction of a property, what the sponsor's closing timeline looks like, and what the backup options are if the offering does not close in time. Having an alternative identified is a question for your advisors, not something this article can settle.
Fees, reserves, and what sits between you and the property
Both structures typically carry costs beyond the purchase price. Sponsors may charge acquisition fees, asset management fees, financing fees, and disposition fees. The trust or the co-ownership may hold reserves for repairs and leasing costs. Those costs reduce the share of your dollars that actually go toward the property.
Fee disclosure is a regulated area, and the offering documents should describe it. FINRA, the self-regulatory organization for broker-dealers, publishes investor education resources and operates BrokerCheck, where you can look up the registration and disciplinary history of the firm and the representative selling an offering.
Topics to review: the full fee schedule, how the sponsor is compensated if the property performs poorly, how reserves are set, and whether the representative presenting the offering is registered and in good standing. Asking for these in writing makes later comparisons easier.
Exit, liquidity, and what happens at the end
Real estate co-ownership interests are typically not liquid. A DST usually has a planned holding period tied to the sponsor's business plan, after which the property is sold and the proceeds distributed. A TIC interest may be sold, but finding a buyer for a fraction of a property can take time, and the agreement may restrict transfers.
At the end of the holding period, investors often face the same question they began with: do they take the gain, or exchange again? Some DST structures allow for a later step in which the trust's property is contributed to a real estate investment trust in a transaction that may defer tax, a possibility your tax advisor can explain. The Wikipedia article on real estate investment trusts gives general background on that kind of entity.
Topics to clarify: the expected holding period, who controls the decision to sell, what the investor's options are at the end, and whether any of those options depend on the sponsor's discretion. Each answer affects how long your capital may be committed.
Assembling the advisory team
Choosing between structures is rarely a solo exercise. A tax advisor understands how the exchange is reported and what could go wrong. A real estate attorney reads the co-ownership agreement or trust documents. A qualified intermediary holds the proceeds and keeps the exchange mechanically sound. A wealth advisor considers how the investment fits alongside everything else you own.
These professionals may not know each other, and the sponsor of an offering has its own interests. It helps to ask each advisor what they can and cannot comment on, and to confirm who is independent of the offering. The CFP Board offers tools to verify a financial planner's certification, which can be part of that process.
If you are still looking for the right people, Capivise offers an advisor matching service that introduces people to vetted professionals, and its 1031 and DST advisor page explains what that type of engagement can cover. It also publishes a questions-to-ask-an-advisor guide that can help structure your first conversations. For background on how advisors are checked, see its advisor verification page.
Closing thought
Tenants-in-common and DST structures are two answers to the same practical question, and they answer it differently. One leans toward shared control with more involvement. The other leans toward a passive interest with less say. Which kind of trade-off fits depends on your goals, your tax picture, your risk tolerance, and your timeline.
Nothing here is advice, and it should not substitute for the guidance of professionals who know your full circumstances. The aim is to help you arrive at those conversations knowing which topics are worth raising, and to leave the answers to the people who are accountable for them.
