1031 Exchanges - Glossary of Terms 


 

1031 - Section of the Internal Revenue Code permitting Tax Deferred Exchanges of like-kind property of both real and personal, held for investment or income producing purposes.

1031 Exchange - The act of exchanging relinquished or acquired real estate or personal property, which is held for investment or income producing purposes. All exchanges must be compliant with the Internal Revenue Code 1031 for use of deferring taxes.

Accommodator - An unrelated professional party who facilitates 1031 exchange transactions. Also known as Qualifed Intermediary (Q.I.) or Facilitator.

Adjusted Basis - The original purchase price of the property being exchanged, plus capital improvements less any depreciation.

Basis - The original purchase price of the property to be exchanged.

Boot - Returned property or cash received by the Taxpayer not included in the exchange. Boot is taxable.

Build-to-Suit Exchange - Also known as Construction Exchange or Improvement Exchange. Permits the Taxpayer to utilize exchange proceeds to improve the replacement property before the exchange is complete. Strict structuring is necessary to prevent transfer of ownership before the improvements are completed.

Delayed Exchange - Also known as Deferred Exchange, Forward Exchange and Starker Exchange. When an exchange is not simultaneous and properties are relinquished and acquired at separate times during the exchange time period.

Depreciation - The loss of value to both personal and real property over time of ownership. The depreciation is used to help fnd the adjusted basis fgures.

EAT - The abbreviation for Exchange Accommodation Titleholder. An unrelated professional entity whom holds property for the Taxpayer during Built-to-Suit and a Reverse Exchange.
 
Equity - The difference between the value of the asset/interest and the cost of the liabilities of something owned.

Exchange Agreement - The agreement between the Qualifed Intermediary and the Taxpayers involved in the 1031 transaction. Include items such as terms of facilitating the process as well as the parties involved and property details.

FEA - The abbreviation for Federation of Exchange Accommodators. A professional organization for Qualifed Intermediaries.

Gain/Capital Gain - The gain is the difference between the sales price of the relinquished property and the adjusted basis.

Identification Period - The 45 calendar day time period the Taxpayer must identify the replacement properties in writing, to the Qualifed Intermediary.

Replacement Period - The 180 day time period from the original closing of the frst property to the completion of the exchange. These are calendar days without exceptions.

Three Property Rule - Up to three properties may be identifed without regard to their fair market value. The Taxpayer may choose to purchase any number of the identifed properties.

The 200% Rule - More than three properties may be identifed as long as their total fair market value does not exceed 200 percent of the selling price of the relinquished property.

The 95% Rule - Any number of properties may be identifed as long as the Taxpayer purchases 95 percent of the fair market value of all properties.             

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