What each structure means
In a tenancy in common (TIC), each co-owner holds a separate, undivided fractional interest in the property. Each owner's interest is their own asset — they can sell it, gift it, or include it in their estate independently. In a joint tenancy, all owners hold identical interests with a right of survivorship: when one owner dies, their share automatically passes to the surviving owners, bypassing probate.
For married couples, a third variant exists: community property (in nine states), which can provide a full step-up on both halves at the first death — a significant advantage over joint tenancy, which typically steps up only the decedent's half.
1031 exchange flexibility
TIC owners have a major advantage: each co-owner's fractional interest is treated as real property for 1031 exchange purposes. Owner A can exchange their 50% TIC interest into a different replacement property while Owner B sells their 50% outright or exchanges into something else entirely. This flexibility is why real estate investors who want different exit strategies tend to prefer TIC over joint tenancy.
Joint tenants cannot easily do separate 1031 exchanges — a joint tenancy must generally be severed (converting it to a TIC) before individual exchanges can occur. Unplanned severance can affect basis allocation and should be planned carefully.
Basis at death
At the death of one joint tenant, the survivor receives a step-up on the decedent's share only — typically 50% if there are two owners. The survivor's own original share does not step up. In community property states, both halves step up at the first death (IRC 1014(b)(6)), which is a powerful advantage.
In a TIC, each owner's share steps up to FMV at their death. The other TIC owners' shares are unaffected. This means TIC ownership is flexible at death — each owner can direct their share by will — but does not provide the community property double step-up.
Frequently asked questions
Can TIC owners do separate 1031 exchanges?
Yes. Each TIC owner's undivided fractional interest is treated as real property, so each can independently do a 1031 exchange into different replacement properties.
Does joint tenancy get a step-up on both halves at death?
In most states, only the deceased joint tenant's share steps up. Community property states provide a full step-up on both halves at the first spouse's death.
Can I convert joint tenancy to TIC for a 1031?
Yes, but the conversion should be planned with a real estate attorney and tax advisor. The severing creates new ownership interests that may affect the 45-day and 180-day exchange timeline.
Sources
Educational information and estimates only. Not tax advice. Tax rules change and vary by situation; consult a qualified tax professional before acting.