1031 DICTIONARY AND COMMONLY USED TERMS

COMMON 1031 EXCHANGE TERMINOLOGY

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1. 1031 Exchange: A tax-deferred exchange that allows a real estate investor to sell a property and reinvest the proceeds into a like-kind property, deferring capital gains taxes.

2. Qualified Intermediary (QI): A neutral third party that facilitates a 1031 exchange by holding funds from the sale of the relinquished property in escrow and facilitating the acquisition of the replacement property.

3. Relinquished Property: The property that the investor intends to sell as part of a 1031 exchange. Sometimes brokers will call this the "downleg" property.

4. Replacement Property: The property acquired in a 1031 exchange with the proceeds from the sale of the relinquished property. Sometimes brokers will call this the "upleg" property.

5. Like-Kind Property: Refers to the requirement that both the relinquished and replacement properties in a 1031 exchange must be of like kind, though the term is broadly interpreted in real estate exchanges to mean all real property. Also, leasehold interests with a term greater than 30 years are like kind to fee interests in real property.

6. Identification Period: The 45-day period in which the exchanger must identify potential replacement properties after the sale of the relinquished property.

7. Exchange Period: The 180-day period during which the exchanger must acquire the replacement property after the sale of the relinquished property.

8. Boot: In a 1031 exchange, "boot" refers to non-like-kind property received by the exchanger, which may trigger capital gains tax.

9. Delayed Exchange: A type of 1031 exchange where the replacement property is identified and acquired after the sale of the relinquished property.

10. Reverse Exchange: A type of 1031 exchange where the replacement property is acquired before the sale of the relinquished property.

11. Qualified Use: Refers to the requirement that both the relinquished and replacement properties must be held for investment, business use, or held for productive use in a trade or business.

12. Exchange Agreement: A legal agreement between the exchanger and the qualified intermediary outlining the terms and conditions of the 1031 exchange.

13. Accommodator: Another term for a qualified intermediary in the context of a 1031 exchange.

14. Tax-Deferred Gain: The capital gains tax on the sale of a property that is deferred in a 1031 exchange.

15. Constructive Receipt: The concept that if an exchanger has direct access or control over the sales proceeds, it may be considered a taxable event. A qualified intermediary helps prevent constructive receipt.

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This glossary provides a basic overview, and it's important to consult with tax and legal professionals for detailed and specific guidance related to 1031 exchanges.