TIC Group Exchanges Without Unanimous Consent: When Not Every Co-Owner Agrees

Each co-owner is its own taxpayer, which is what makes split decisions possible

Under Reg. section 301.7701-1(a)(2), 'mere co-ownership of property that is maintained, kept in repair, and rented or leased does not constitute a separate entity.' Co-owners in that position each hold real property and can each exchange it. The same regulation warns that co-owners who carry on a business and divide the profits, such as providing services to apartment occupants, create a separate entity.

That line matters because a partnership interest is not real property. Section 1031(a)(1) covers real property only, and section 1031(e) treats a partnership interest as an interest in its assets only if the partnership has a valid section 761(a) election to be excluded from subchapter K. A group that has been filing partnership returns usually has to restructure first, as drop-and-swap strategies explains.

In a true tenancy in common, each co-owner who wants to exchange signs its own exchange agreement, assigns its share of the sale to its own qualified intermediary, identifies its own replacement and files its own Form 8824. The others can take cash. Nobody else's choice disqualifies yours.

Selling the whole property still needs every owner, and many co-tenancy agreements make that explicit

A buyer who wants the whole building needs a deed from every co-owner, because each owns an undivided interest that only it can convey. That is the practical source of the unanimity problem: tax law lets you exchange alone, but property law needs everyone to sell.

Sponsored co-tenancy agreements often write unanimity in. Section 6.05 of Rev. Proc. 2002-22 says that for an IRS ruling that a tenancy in common is not a partnership, any sale, lease or refinancing must be approved unanimously, while section 6.06 says each co-owner must keep the right to transfer, partition and encumber its own interest, subject to customary lender restrictions. Section 3 says those conditions are guidelines for ruling requests, not substantive rules.

Read your own agreement first. It may contain a right of first offer, a buy-sell clause, or a promise to offer your interest to the other co-owners at fair market value before seeking partition, which section 6.06 permits.

Three ways forward when a co-owner says no

Buyout. The co-owners who want to keep the property buy the others out. The sellers each sell an undivided interest in real estate and can exchange their proceeds; the buyers pay cash, borrow, or use exchange proceeds from another sale, which buying out a co-owner with 1031 proceeds covers. If the co-owners are family, section 1031(f) can apply; see selling to a family member.

Sell your own interest. You can sell your undivided share to a third party or to the other co-owners and exchange the proceeds. Expect a lower price than a share of a whole-building sale, because a buyer of a fractional interest inherits the same co-owners.

Partition. In California, Code of Civil Procedure section 872.210 lets any concurrent owner of real property bring a partition action, and section 872.820 requires the court to order a sale when the parties agree or when a sale would be more equitable than dividing the property. Other states have similar statutes. A court-ordered sale is slow and costly, which is why the threat of partition often produces a negotiated buyout.

Worked model: four co-owners, four different tax positions

Hypothetical: four co-owners hold 25% each of a debt-free building that sells for $4,000,000 net, so each share's amount realized is $1,000,000. Their bases differ because they arrived at different times, and each decides alone.

Run your own numbers with your CPA. Co-owner A's federal figure assumes $450,000 of other taxable income filing jointly and uses the 2026 breakpoints in Rev. Proc. 2025-32 under section 1(h).

• A bought in 2008: basis $250,000 after $200,000 of depreciation, gain $750,000. Selling costs $50,000 on the depreciation layer, $110,000 at 20% and $28,500 of net investment income tax, $188,500 federal. A exchanges the full $1,000,000 instead and defers all of it.
• B inherited in 2024: basis about $950,000, gain about $50,000. B takes cash, because there is little to defer.
• C bought in 2015 and wants different property from A, so C runs a separate exchange into a different replacement.
• D wanted to keep the building and agreed to sell only after the others offered to wait six months; with a buyout or partition as the alternatives, D's signature was the price of the timing.

Fractional replacements suit co-owners who are leaving

Co-owners exchanging out of a dispute rarely want another shared building. Each can buy exactly the replacement its share calls for, including an interest in a Delaware statutory trust, which Rev. Rul. 2004-86 treats as real property for section 1031 and in which a trustee, not the investors, makes the decisions.

Co-owners who disagree about the next property but not about selling are in a different situation, covered in when only one partner wants cash. Exchanging into a new TIC interest is covered in exchanging into a TIC interest.