Glossary

1031 Exchange (aka like-kind exchange)

1031 Exchange is a method of deferring capital gains taxes on the sale of real estate held for investment purposes by exchanging proceeds from the sale of such asset, into like-kind property of equal or greater value that is held for investment purposes, as defined in IRC Section 1031.

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180-Day Exchange Period

180-day exchange period is defined under IRC Section 1031, which states that an exchanger or taxpayer executing a delayed exchange has 180 calendar days from the closing date of the sale

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200% Rule

Under IRC Section 1031, an exchanger or taxpayer executing a delayed exchange has 45 calendar days from the closing date

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45-Day Identification Period

Under IRC Section 1031, an exchanger or taxpayer executing a delayed exchange has 45 calendar days from the closing date of the sale of their

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95% Rule

Under IRC Section 1031, an exchanger or taxpayer executing a delayed exchange has 45 calendar days from the closing date of the sale of their relinquished property to formally identify a replacement property or properties.

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Accommodator

An independent person, company, or entity that enters into a written agreement with the exchanger to facilitate the transfer of proceeds from the buyer of the relinquished property to the exchanger and from the exchanger to the seller of the replacement property to effect a tax deferred exchange under IRC Section 1031.

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Actual Receipt

Actual receipt is physical possession of, exchange proceeds or other property by an exchanger completing a tax-deferred like-kind exchange. Any receipt of the exchange proceeds during the exchange period will disqualify the entire tax-deferred exchange transaction under IRC Section 1031. An actual receipt isn’t a paper receipt for the purchase of something, such as might happen at a retail store. Instead, it is another term used to express possession of sale proceeds of the relinquished property in a 1031 exchange. A common form of actual receipt is a check for the sale proceeds. Two receipts can occur in a 1031 exchange. One is the actual, and the other is the constructive receipt. A constructive receipt may involve the client’s attorney. In this case, the attorney is an agent of the client and takes possession of sale proceeds then passes them on to the client. That violates the 1031 exchange rules.

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Beneficial Interest

A beneficial interest, typically referred to in manners concerning trusts, is the right to receive benefit from assets held by another party.

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Boot

Boot, although not specifically defined (or even mentioned) in IRC Section 1031, is commonly used and refers to the fair market value of cash,

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Broker Dealer

Broker dealer is a person or firm in the business of buying and selling securities, operating as both a broker and a dealer, depending on the transaction.

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Concurrent Exchange

Concurrent exchange refers to a method of executing a tax deferred exchange (aka 1031 exchange or like-kind exchange) where the sale of the relinquished property

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Constructive Receipt

Constructive receipt is direct access to tax-deferred like-kind exchange funds or other property by an exchanger completing a tax-deferred like-kind exchange.

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Delayed Exchange

Delayed exchange refers to a method of executing a tax deferred exchange (aka 1031 exchange or like-kind exchange) in which the exchanger or taxpayer sells

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Depreciation

Depreciation, in our context, refers to the allocation of an asset’s cost over the timeframe of its “useful life”, or duration for which it will be useful

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Depreciation Recapture

Depreciation recapture is the USA Internal Revenue Service (IRS) procedure for collecting income tax on a gain realized by a taxpayer when the taxpayer disposes of an asset

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Escrow Agent

Escrow agent is an entity that has fiduciary responsibilities in the transfer of property from one party to another. The escrow agent acts as a custodian of

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Exchange Accommodation Titleholder (EAT)

Used when completing a reverse exchange, an Exchange Accommodation Titleholder (EAT) is an unrelated party who holds legal title to either

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Exchange Accommodator Titleholder (EAT)

For Exchange Accommodator Titleholder see Accommodator.

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Exchange Agreement

A written agreement between the exchanger and the Qualified Intermediary (QI) defining the transfer of the relinquished property, the ensuing purchase of the replacement property, and the restrictions on the exchange proceeds during the exchange period.

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Exchange Period

Exchange period, under IRC Section 1031, is when an exchanger or taxpayer executing a delayed exchange has 180 calendar days from the closing date of the sale

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Exchange Proceeds

Exchange proceeds are cash proceeds from a transfer of relinquished property held in a qualified escrow account set up by a qualified intermediary whereby the funds

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Exchanger

Exchanger is the taxpayer or owner of the property or properties being exchanged during a tax deferred exchange (aka 1031 exchange or like-kind exchange).

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Held for Investment

Properties held for investment purposes can be any property or asset that are acquired and held for income production (rental or leasing activities) or for growth in value (capital appreciation). In order to qualify for tax-deferred treatment, property must have been held for investment or for business use. Property held for resale (e.g. inventory such as for-sale condo units) typically will not qualify for tax-deferred treatment.

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Identification Period

Identification period, under IRC Section 1031, an exchanger or taxpayer executing a delayed exchange has 45 calendar days from the closing date of the sale of their

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Intermediary

Intermediary is an entity that acts as the middleman between two parties in a financial transaction.

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Like-Kind Exchange

A method of deferring capital gains taxes on the sale or disposition of an asset held for business or investment purposes by exchanging the asset,

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Like-Kind Property

Upon the sale of an investment property, capital gains may be deferred by completing a 1031 exchange provided that the investor purchases

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Partial 1031 Exchange

To the extent less than 100% of the proceeds of a relinquished property are reinvested, the difference will result in mortgage boot and/or cash boot.

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Real Estate Rollover

A real estate rollover is a type of property exchange that allows the investor to roll their gains over into like-kind property. This transaction is called a 1031 exchange. Because gains from the relinquished property are rolled into the acquired property, taxes on those gains are deferred.

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Realized Gain

Realized gain is the amount of gain that the investor made from the sale of an asset. It is calculated as the net sales price received (sales price of the asset less any

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Recognized Gain

Recognized gain is the taxable portion of realized gains arising from the sale of an asset or assets. Recognized gains are typically less than realized gains due to

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Regulation D Offering

A Regulation D Offering is a Securities and Exchange Commission (SEC) regulation governing private placement exemptions that allows companies to raise capital through

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Related Parties Transaction

Related parties transaction is a business deal or arrangement between two parties who are joined by a personal or other relationship prior to the deal.

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Relinquished Property

In a tax deferred (aka 1031 exchange or like-kind) exchange, the property being sold or disposed of is referred to as the relinquished property. The relinquished property is on the opposite side of a 1031 exchange to the replacement property.

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Replacement Property

Replacement property, during a tax deferred (aka 1031 exchange or like-kind) exchange, is the property being purchased or acquired.

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Replacement Property Interests (RPI)

Replacement Property InterestsTM is the term Realized uses to describe equity ownership in large properties by multiple 1031 exchange investors through Delaware Statutory Trusts (DST) and Tenant-In-Common (TIC)

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Reverse Exchange

A reverse exchange Refers to method of executing a tax-deferred exchange (aka 1031 exchange or like-kind exchange) in which the exchanger or taxpayer acquires the

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Safe Harbor

Safe harbor is a statutory or regulatory provision that provides protection from a penalty or liability. In the context of a 1031 exchange, safe harbor refers to any one of

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Same Taxpayer Provision

A requirement in a 1031-exchange transaction, the same taxpayer provision states that the taxpayer who owned the relinquished property must be the same taxpayer who takes ownership of the replacement property. This ensures that the taxpayer’s basis is carried over into the new property, and that there is a continuity of deferral.

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Simultaneous Exchange

See Concurrent Exchange.

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Three Property Rule

The Three Property Rule is defined under IRC Section 1031, which states that an exchanger or taxpayer executing a delayed exchange has 45 calendar days from the closing date of the sale of their relinquished property to formally identify a replacement property or properties.

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