1031: Internal Revenue Code Section 1031 that authorized tax deferral on like kind exchanges.
1031 Exchange: A 1031 Tax Deferral permits taxpayers to reinvest the proceeds from the sale of property held for investment or business purposes into another investment or business property, and defer capital gains tax that would otherwise be due on the initial sale.
Boot: Non-like-kind property (cash or other property) given by one party to another party in a tax-deferred, like-kind exchange that is taxable. For instance, if you trade in a delivery truck on a new model, the cash you pay in addition to your old truck is boot. Boot received may be offset by boot given. See also Mortgage Boot.
Exchange Agreement: A written agreement between the Qualified Intermediary and Exchangor setting forth the Exchangors intent to exchange relinquished property for replacement property, as well as the terms, conditions and responsibilities of each party pursuant to the tax-deferred, like-kind exchange transaction.
Exchange Fees: To set up an exchange, usually it is necessary to hire a Qualified Intermediary. However, the cost of conducting the exchange can be collected on the closing statement - so that the fee is actually paid for with the proceeds of the relinquished property. Exchange fees include the following: preparation of the exchange-documentation, coordination, and communication with the title-company/law-firm that is closing the transaction. The fees for your exchange will always range in cost depending on the size and complexity of your transaction.
Exchanger/Exchangor: The owner of the investment property looking to make a tax deferred exchange. Unfortunately an exchanger cannot be an owner that wishes to defer capital gains tax on a “second home”.
Identification Period: The period of time (The period is 45 calendar days from the transfer of the Exchangors relinquished property and is not extended due to holidays or weekends.) in which the Exchangor must identify potential replacement properties in his or her tax-deferred, like-kind exchange.
Like-Kind Exchange: The sale or disposition of real estate or personal property (relinquished property) and the acquisition of like-kind real estate or personal property (replacement property) structured as a tax-deferred. Like-kind exchange transaction pursuant to Section 1031 of the Internal Revenue Code and Section 1.1031 of the Treasury Regulations in order to defer Federal, and in most cases state, capital gain and depreciation recapture taxes.
Like-Kind Property: The properties involved in a tax deferred exchange must be similar in nature or characteristics. Like-kind real estate property is generally any real estate that isn't your personal residence or a second home.
Qualified Intermediary: An unrelated party who participates in the tax-deferred, like-kind exchange to facilitate the disposition of the Exchangors relinquished property and the acquisition of the Exchangors replacement property. The Qualified Intermediary has no economic interest except for any compensation (exchange fee) they may receive for facilitating the exchange as defined in Section 1031 of the Internal Revenue Code. The Qualified Intermediary is the correct technical reference pursuant to the Treasury Regulations, but the Qualified Intermediary is also known as the Accommodator, Facilitator or Intermediary.
Real Estate Exchange: Exchange of real property for real property. All types of real property are like-kind for other real property, including vacant land, residential, commercial, and even long term leases.
Relinquished Property: The original property being sold by the taxpayer when making an exchange.
Replacement Property: The new property being acquired by the taxpayer when making an exchange.
Reverse Exchanges: Type of exchange in which the Replacement Property is purchased before the sale of the Relinquished Property.
Starker Exchange: Another common name for the tax-deferred, like-kind exchange transaction based on a court decision that was handed down (Starker vs. Commissioner) in 1979. The Ninth Circuit Court of Appeals eventually agreed with Starker that its delayed tax-deferred, like-kind exchange transaction did in fact constitute a valid exchange pursuant to Section 1031 of the Internal Revenue Code. This ruling set the precedent for our current day delayed exchange structures.
Tax Deferred Exchange: The procedure outlined under Internal Revenue Code Section 1031 involving a series of rules and regulations that must be met in order to take full advantage of deferring capital gains tax on the sale of investment real estate. §1031 tax-deferred exchanges are also commonly known as: Starker exchanges, delayed exchanges, like-kind exchanges, 1031 exchanges, section 1031 exchanges, tax-free exchanges, nontaxable exchanges, real estate exchanges, real property exchanges. Though all of these terms refer to the same thing, the most typical term used today is tax deferred exchange.
Tenancy In Common (TIC): A fractional ownership interest in a piece of property, rather than owning the entire piece of property.