1031 Exchange Terms

Accommodator
Another name for the intermediary.

Basis: a.k.a. "adjusted basis,"
The basis of a property is the purchase price of the property (the amount you paid for it) plus any capitalized improvements made while you owned the property, less any depreciation taken while you owned the property.

Boot
The fair market value (F.M.V.) of an asset, other than "like" real property, offered in lieu of cash in an exchange, i.e., Trust Deeds, Land Contracts, goodwill, services rendered, etc. "Boot" is taxable.

Gain (see realized gain and recognized gain)
Profit derived from the sale or exchange of capital assets such as real estate, stocks or bonds.

Capital improvement
Any improvement that extends the life or increases the value of a piece of property.

Debt relief
If the debt on the relinquished property is greater than the debt on the replacement property, it constitutes debt relief and the excess amount is taxable as boot.

Delayed exchange: a.k.a. "Starker Exchange"
A 1031 exchange in which the Replacement Property is acquired by the Exchanger after the Relinquished Property is transferred.

Depreciation
The annual deduction allowed by the IRS on improvements. Improvements are buildings and components, parking lots, etc. Land is not depreciable.

Equity
T he difference between the F.M.V. and the existing loan(s) against the relinquished property.

Exchangor: a.k.a. "Taxpayer"
The person or entity that is exchanging one property for another in a 1031 Tax-Deferred Exchange.

Facilitator a.k.a. "Qualified Intermediary"
Typically, a company that helps structure and document the 1031 exchange.

Identification
Within 45 days after the relinquished property is exchanged. Property must be identified in writing typically to the facilitator.

Improvement exchange
Refers to a 1031 exchange where improvements to the Replacement Property are completed prior to the transfer of ownership to the Exchanger.

Intermediary
A third party who facilitates an exchange of property.

Leverage
The use of a small amount of cash, equity, and or paper, to buy a piece of property.

Like kind property
Any real property is "like-kind" to any other real property as long as it is neither personal use property (such as a principal residence) or property held for sale to customers (dealer property).

Qualified Intermediary
Middleman, facilitator, accommodator, term given to a person or entity making the trade with the taxpayer. Typically hired to convert a sale/purchase into an exchange.

Realized Gain
The gross profit taxed in a sale.

Recognized Gain
The taxable gain, there is none in a complete 1031 exchange

Relinquished property
The property that the Exchanger transfers to another party in an exchange.

Replacement property
The property that the Exchanger acquires in a exchange.

Simultaneous exchange
The disposition of the Relinquished Property and the acquisition of the Replacement Property must occur at exactly the same time.

Starker Exchange
A name derived from the Starker Court Case in 1979 that is used to describe a delayed exchange. The first case that challenged exchanges of property received over a period of 2 years.

Tax deferred exchange
A transaction through which an Exchanger disposes of property and acquires other property within the requirements of Internal Revenue Code 1031, thereby postponing taxation on gain attributable to the transaction.

Disclaimer
These definitions are for general information purposes. They are not meant as legal definitions. Please consult a qualified professional for further explanations.

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