1031 Exchange Glossary

A tax strategy used in real estate. It allows the rollover of proceeds from the sale of an investment property into another like- kind investment property, while deferring capital gains.

The time in which a 1031 exchange must be complete, from closing on the relinquished property and purchasing a replacement property. There are no extensions.

The exchangor must identify any replacement property within 45 days from the closing of the relinquished property.

To calculate an asset’s adjusted basis, take its purchase price and add or subtract any changes to its initial value. Capital gains tax is paid on the difference between the adjusted basis and the amount the asset or investment was sold for.

Original cost of property + Improvements – Depreciation = Adjusted Basis.

The value of an asset.

Any non- “like-kind” property received in an exchange. This includes cash, promissory notes, or debt relief (mortgage boot). If boot is received in an exchange, it is likely to trigger a taxable event.

Also known as a Construction Exchange, improvements or repairs are made on a replacement property before it is transferred to the exchangor, while a holding entity, called an EAT or an exchange accommodation titleholder, is temporarily in possession of the property during the exchange period.

The profits earned from the sale of property or investment.

Several expenses paid at a closing are considered “exchange expenses”. The exchangor may use exchange funds to pay these expenses without resulting in a tax liability.

Examples: Exchange fees, broker’s commissions, title and escrow fees, recording fees, transfer taxes, attorney’s fees in connection with the sale or purchase of the property

(Non-exchange expenses: Fees associated with financing, prorated rents, security deposits, insurance premiums, property taxes)

When cash has not been physically received, but the taxpayer is still in control or can utilize the funds.

An exchangor disposes of the relinquished property on day 1 and has up to 180 days from to acquire the replacement property.

(Also known as a Forward Exchange)

A decrease or loss in the value of an asset with the passage of time, usage, wear and tear and/or market conditions.

A Delaware Statutory Trust (DST) is a legally recognized trust frequently used in real estate investing. Investors own fractional interest in larger profiles, as individual owners within the trust. Each investor receives their share of cash flow and tax benefits.

An entity created by a QI to temporarily hold the exchangor’s real estate.

Value of what an asset is worth, less what is owed.

The time between the close of escrow on a relinquished property and the purchase of a replacement property. This period is a maximum of 180 days. There are no extensions, regardless of day 180 falling on a weekend or holiday.

The taxpayer who is completing the tax-deferred, like-kind exchange.

Interest accrued on the exchange proceeds while being held by the Qualified Intermediary (QI).

(QI), also known as an accommodator or facilitator, is a person or company that facilitates an exchange.

Real property is a parcel of land and everything permanently attached to the land. The owner of real property has all rights of ownership, including the right to possess, sell, lease, and enjoy the land.

The property being sold by the exchangor.

The property being purchased in place of relinquished property.

Replacement property is acquired by an accommodation titleholder before the relinquished property is transferred.

The Exchange Accommodation Titleholder (EAT) takes title to the replacement property and holds it, allowing the exchangor to transfer the relinquished property to a third-party buyer.

An Exchange Accommodation Titleholder (EAT) acquires then improves or repairs the replacement property, with direction from the exchangor, before the exchangor sells the relinquished property or the 180-day exchange period expires.

Tenancy in Common (TIC) is a legal arrangement in which two or more parties have ownership interests in real property. Each party owns a fractional, undivided interest in the property.