Glossary of Terms

1031 Exchange (aka 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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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

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Absolute Triple Net Lease

Also known as a bondable lease, the most extreme form of NNN Lease, in which the tenant is responsible for all property related risks. 

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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

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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.

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Adjusted Basis

The original purchase price of an asset plus its acquisition costs plus any capital improvements less the cumulative depreciation deductions

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Basis

In the context of commercial real estate, an asset’s basis is the original purchase price or cost of investment property plus any out-of-pocket

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Boot

Although not specifically defined (or even mentioned) in IRC Section 1031, the term “boot” is commonly used and refers to the fair market value of cash,

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Capital Asset

Capital assets, for corporations and business entities, are assets that have a useful life longer than one year and are not held for sale in the ordinary course of business.

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Capital Gain

Capital gain is an increase in the value of a capital asset (investment or real estate) that gives it a higher worth than the basis of the asset. Capital gains can also

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Capital Gains Tax

Capital gains tax is tax payable on capital gains realized from the sale of a capital asset. Capital Gains Taxes are assessed by the federal government in the United States

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Capital Reserves

In the context of commercial real estate, capital reserves are funds designated for long term capital investment projects or

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Conservation Easement

A landowner voluntarily agrees to sell or donate certain rights associated with his or her property – often the right to subdivide or develop – and

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Constructive Receipt

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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Deed in Lieu of Foreclosure

A deed instrument in which the mortgagor (borrower) conveys all interest in a real property to the lender to satisfy a loan that is in default and avoid

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Deferred Gain

In a tax-deferred exchange, the deferred gain is the amount of gain that escapes current taxation and is deferred until a later date.

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Delaware Statutory Trust (DST)

A separate legal entity created as a trust under Delaware state laws. Despite the name, neither the property nor the investor need to be located

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Depreciation

In our context, depreciation 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

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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Exchange Accommodator Titleholder (EAT)

For Exchange Accommodator Titleholder see Accommodator.

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Exchange Period

Under IRC Section 1031, an exchanger or taxpayer executing a delayed exchange has 180 calendar days from the closing date of the sale

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Exchanger

In a tax deferred exchange (aka 1031 exchange or like-kind exchange), the taxpayer or owner of the property or properties being exchanged

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Foreign Investment in Real Property Tax Act (FIRPTA)

Foreign Investment in Real Property Tax Act (FIRPTA) is a United States tax law that imposes a tax on foreign persons disposing of United States real property interests. To ensure tax collection from

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Form 8824

A form to be filled out with an exchanger’s tax return in order to report the completion of a 1031 like-kind exchange to the IRS.

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Future Value (FV)

Future value is a time value of money (TVM) concept that represents the expected value, as of a defined date in the future, resulting from

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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

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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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Investment Property

A broad term for a real estate property that has been purchased with the intention of earning a return on the investment, either through

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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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Ordinary Income

The income earned from providing services or the sale of goods. Ordinary income is composed mainly of wages, salaries, commissions and

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Personal Property

A type of property which, in its most general definition, can include any asset other than real estate. The distinguishing factor between personal

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Present Value (PV)

Expected value, as of the date of valuation, resulting from discounting future amounts.

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Qualified Intermediary

An independent  person, company, or entity that enters into a written agreement with the exchanger to facilitate the transfer of proceeds from

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Realized Gain

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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Related Parties Transaction

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.

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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 Reserves

See Capital Reserves.

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Safe Harbor

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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Step-Up In Basis

When a taxpayer bequeaths an asset to a beneficiary upon death, the beneficiary’s tax basis in the asset is “stepped up” to the fair market value of

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Tax Basis

Tax basis, in the context of commercial real estate, is the original purchase price or cost of an investment property plus any out-of-pocket

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Tax Deferred

Tax deferred is an instance where investment earnings such as interest, dividends, or capital gains accumulate tax-free until the payment of taxes related to the

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Taxable Income

Taxable income is calculated as total revenue less total expenses and applicable deductions and exemptions that are allowed in that tax year.

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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

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Trust, Land

A fully revocable grantor trust designed and drafted specifically to acquire, hold, manage and ultimately dispose of real estate on a confidential or

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