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Fractional Real Estate Investing
How fractional ownership of real estate works, and which fractional structures such as a DST or TIC can qualify for a one thousand thirty one exchange
Fractional real estate investing generally allows multiple investors to each own a portion of a single property, dividing the purchase price, income, and appreciation among the owners. Columbus, OH investors encounter several types of fractional ownership, including tenancy in common arrangements where each owner holds direct title to an undivided percentage of the property, and Delaware Statutory Trust structures where each investor holds a beneficial interest in a trust that owns the property. Both of these structures generally preserve each investor's connection to the real property itself, which is an important distinction from other fractional models built around company shares or membership units.
A properly structured tenancy in common interest, generally called a TIC, or a Delaware Statutory Trust interest structured under Revenue Ruling 2004-86, generally can qualify as like kind replacement property for a one thousand thirty one exchange because each investor's interest represents a direct or beneficial ownership stake in real property rather than an interest in an operating business. Other fractional models, such as fractional shares offered through certain real estate technology platforms structured as equity in a holding company, generally do not qualify for exchange treatment because the investor's interest is in the entity rather than the underlying real estate. DST and TIC interests may be securities, so Columbus, OH investors evaluating fractional ownership generally work with a licensed securities professional in addition to a Qualified Intermediary.
What's Included
- Overview of tenancy in common and Delaware Statutory Trust fractional structures
- Explanation of Revenue Procedure 2002-22 TIC structuring requirements
- Clarification of which fractional platforms generally do not qualify for exchange treatment
- Comparison of investor involvement between TIC and DST ownership
- Introduction to licensed providers for fractional 1031-eligible offerings when applicable
- Coordination with a Qualified Intermediary for exchange timing
- Discussion of exit and liquidity considerations for fractional interests
- Referral to a tax advisor and licensed securities professional as needed
Common Situations
Investor in Columbus, OH wants to diversify exchange proceeds across multiple fractional interests
Exchanging investor is comparing a TIC against a DST for a fractional replacement property
Investor was offered a fractional platform interest and wants to confirm whether it is 1031-eligible
Frequently Asked Questions
What types of fractional real estate ownership are available to Columbus, OH investors?
Common fractional structures include tenancy in common arrangements, where each owner holds direct title to an undivided share of the property, and Delaware Statutory Trust interests, where each investor holds a beneficial interest in a trust that owns the property. Other platforms offer fractional shares structured as equity in a holding entity, which is a different arrangement with different tax treatment.
Does a tenancy in common interest qualify as one thousand thirty one replacement property?
A properly structured tenancy in common interest can generally qualify as like kind replacement property because each co-owner holds direct title to an undivided interest in the real property itself, subject to specific structuring requirements outlined in Revenue Procedure 2002-22. Columbus, OH investors generally need the TIC agreement reviewed to confirm it meets these requirements.
Is every fractional real estate platform 1031-eligible?
No, some fractional real estate platforms structure investor participation as equity shares in a company that owns the property rather than direct or beneficial ownership of the real property, which generally does not qualify as like kind replacement property. Columbus, OH investors should confirm the legal structure of any fractional offering before assuming it supports exchange deferral.
What is the difference between a TIC and a DST for fractional ownership?
A tenancy in common generally involves each investor holding direct title and voting on major property decisions, which can involve more investor involvement and unanimous consent requirements, while a Delaware Statutory Trust generally centralizes decision making with a trustee, offering a more passive experience. Both can generally qualify for one thousand thirty one treatment when properly structured.
Should a Columbus, OH investor use a licensed securities professional for fractional real estate investing?
Yes, because DST and TIC interests may be securities, Columbus, OH investors evaluating fractional ownership structures generally should work with a licensed securities professional to review offering documents and suitability, in addition to a Qualified Intermediary for exchange timing.
Example Engagement
Example of the type of engagement we can handle
Client Situation
An investor in Columbus, OH wanted to diversify a large exchange across multiple properties using fractional ownership rather than purchasing a single replacement property outright
Our Approach
We explained the distinction between TIC and DST fractional structures, reviewed how each preserves like kind treatment, and introduced the investor to a licensed provider offering multiple fractional DST interests
Expected Outcome
Investor selected a combination of DST interests to diversify the exchange proceeds while meeting the identification and closing deadlines
Educational content only. Educational content only. Not tax, legal, or investment advice. DST or TIC interests may be securities. We do not sell securities. We provide introductions to licensed providers only.
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