1031 Exchange: The sale or
disposition of real estate or personal property and the acquisition of like-kind real estate or personal property structured as a tax-deferred, like-kind swap of
properties.
Accommodator:
An unrelated party who facilitates
the sale and acquisition of a tax-deferred, like-kind swap of
properties.
Actual Receipt :
Direct access to your exchange funds or other property.
Adjusted Basis :
The amount you use to determine your capital gain or loss from a sale
or disposition of property. It is the adjusted cost basis for
your property: 1. Original purchase cost. 2. Plus purchasing expenses 3. Plus cost of capital improvements 4. Plus principal
payments of special assessments (sewer and streets) 5. Less depreciation
Balancing the Exchange: A
balanced exchange defers 100% of taxes. To
achieve a balanced exchange: 1) Acquire a replacement property equal to or greater value than the exchange property 2) Reinvest
all of the net equity from your property in the replacement
property 3) Assume debt on the replacement property that is equal
to the debt on the replacement property. Contribute
cash to make up any difference when the debt of the replacement property is more than the debt on your property to even it up.
Basis: The amount you use to determine your capital gain or loss from a sale or disposition of property.
Boot: Non-like-kind
property given by one party to another party in a 1031 exchange. Cash proceeds are the most common form of boot and
may be taxed.
Build-To-Suit Exchange: The replacement property to
be acquired needs to be built.
Business Assets:
Real property, tangible depreciable property, intangible property used in a business. Exchanging one
business for another business is not allowed, however, exchange of business assets is allowed.
Capital Gain or Loss: The difference between the sale price of a property or asset and its Adjusted Cost Basis.
Capital Gain Tax:
Federal and state government tax on investments.
Capital Improvements: Any permanent improvements made to increase usefullness.
Cash Boot:
Cash Boot consists of cash and non-qualifying property put into a 1031 exchange to balance the equities.
Concurrent Exchange:
A 1031 transaction where a simultaneous
exchange takes place.
Constructive Receipt:
Exercising control of your exchange funds or other property, it may disqualify you under IRC 1031.
Deferral:
The capital gains tax is not paid when the property is sold in a 1031 exchange.
Delayed Exchange:
The replacement Property is received after the transfer of the
Relinquished Property. The Exchanger must
identify all Replacement Properties within 45 days of the
transfer of the Relinquished Property and must receive
all Replacement Properties within 180 days or the due date of the
Exchanger's tax return whichever occurs first. These rules are subject to change and should be verified as accurate.
Depreciable Property:
Property with a useful life of more than one year. You can spread the cost of
the asset over its estimated useful life rather than deducting the
entire cost in the first year.
Depreciation:
Typical wear and property over the property's economic life.
Depreciation Recapture:
The amount of gain from a sale of property that is a recovery of depreciation expense
previously deducted.
Disposition: The sale or other disposal of property.
Exchange Agreement:
A written agreement between the Qualified Intermediary and Exchanger
defining the exchange under IRS 1031
exchange.
Exchange Period:
The period of time during which the Exchanger must complete the
acquisition of the replacement property(s) in a tax-deferred transaction.
Exchanger:
The owner of the investment property who is completing a tax deferred
exchange. The Exchanger can be an individual, partnership, LLC,
corporation or institution.
Exchange Period:
The 180-day window in which the exchanger must complete a tax deferred
exchange. Additionally, there is a 45-day window in which
the exchanger must identify which property(s) will be purchased.
Excluded Property:
Like-kind exchanges do not apply to property held for personal use such as:
homes, boats or cars, cash. Or other property for sale such as: inventories, real estate
held by dealers, stocks, bonds or partnership interests.
Fair Market Value:
The price at which property would change hands between a buyer and a
seller.
Fractional Interest: An partial interest in property
Tenancy-In-Common: A ownership interest made up of two or more
individuals, who have equal rights of possession.
Identification Period: A 45 calendar day window which the Exchanger must identify potential
replacement property(s) to complete a tax-deferred, like-kind exchange.
Improvement Exchange:
A like-kind exchange whereby the Qualified Intermediary acquires title to both exchange properties while improvements are made to the replacement property.
Improvements: Capital improvements permanent upgrades rather than maintainance
or repair.
Intermediary: An
unrelated party who facilitates the disposition and acquisition of the Exchange propertys.
Like-Kind Exchange: The
sale or disposition of real estate or personal property (relinquished
property) and the acquisition of like-kind real estate or personal
property (replacement property) structured as a 1031
exchange
Like-Kind Property:Properties are of like-kind, if they are of the same nature or
character. Real properties generally are of like-kind, regardless of whether the
properties are improved or unimproved.
Mixed Property (Multi-Asset) Exchange:
An exchange that includes different types of properties, such as:
personal property, real property, and intangible personal property.
Mortgage Boot/Relief: Mortgage
Boot consists of the secured debt given up and received as part of the
same exchange. If the mortgage debt recieved is less than the mortgage debt given up there has been a gain.
Multiple Property Exchange: Disposition and/or acquisition of more than one property in a Section 1031 Exchange.
Parking Arrangement: When exchange propert is acquired by an Exchange Accommodation
Titleholder (EAT) and parked, in order to facilitate a reverse or
build-to-suit exchange transaction
Partial Exchange: Exchanges are "partial exchanges" when the taxpayer elects to treat the portions of the sale differently,
Personal Property Exchange:
A tax-deferred transfer of personal property that are like-kind exchanges.
Principal Residence Exemption:
Exclusion from capital gain tax on the sale of principal residence of $250,000 for individual taxpayers and $500,000 for couples, filing
jointly.
Qualified Escrow Account:
A trust where the trustee is not the Exchanger. That limits the Exchanger's rights to receive or control exchange assets in compliance 1031 Regulations. The Qualified Escrow Account also protects the Exchanger's exchange assetsf from claims against the Qualified Intermediary.
Qualified Intermediary: The
QI is an unrelated party that participates in the 1031 exchange. The Qualified Intermediary
acts as the middle-man holding
the proceeds of the sale.
Qualified Use:
An Exchanger must use the property in their trade or business or hold
the property for investment or income to meet the qualified
use test.
Relinquished Property: The original property to be sold or disposed of by the Exchanger in the 1031 exchange transaction.
Replacement Property: The new property being acquired by the taxpayer when making a 1031 exchange .
Reverse Exchange: Where the replacement
property is acquired first and the sale of the relinquished
property occurs later. Transfer Tax: A tax assessed by a city,
county or state on the transfer of property that may be based on equity
or value.
