§1031 Exchange Terms / Glossary

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§1031 Exchange Internal Revenue Code Section §1031 states that no gain or loss is recognized where property held for investment or productive use in a trade or business is exchanged solely for property of like-kind which is to be held for investment or productive use in a trade of business. Also known as “Deferred Exchange”.

1991 Revisions Year when the IRS held a hearing to “clean up” the Tax Reform Act of 1984 and provide uniform terminologies. A main result of this revision was that the IRS eventually had a change of attitude toward Delayed Exchanges by accepting them instead of fighting them.

Accommodator A Qualified intermediary who agrees to assist the exchanger to affect a tax-deferred exchange. Also described as a facilitator or an intermediary, a qualified intermediary cannot be the taxpayer, a related party, or an agent of the taxpayer.

Accredited Investors Tenant In Common investments are considered private placements under the Securities and Exchange Commission’s (SEC) Regulation D. Furthermore, the nature of the investments requires that all investors be of an “accredited” status. An accredited investor (also known as, a “qualified investor”) is financially sophisticated.

An Individual Accredited Investor is defined as: (meet one of the two bolded qualifications)

• $200,000 individual income or $300,000 joint income.
  An investor must have had individual income of at least $200,000 or joint income with a spouse of at least $300,000, in each of the two most recent calendar years, and have a reasonable expectation of having at least $200,000 of individual income or $300,000 of joint income in the current year.
  
  
• Greater than $1,000,000 net worth.
  An individual must have a net worth, either with or without his spouse, of $1,000,000 at the time of the investment.

Appreciation An increase in an asset’s value.

Basis in the Replacement Property In an exchange, the deferral of the tax on the gain is accomplished by requiring the taxpayer to carry over (substitute) the basis of the relinquished property to the replacement property with suitable adjustments in the event additional consideration is paid.

Boot Fair market value of non-qualified (not “like-kind”) property received in an exchange. (Examples: cash, notes, seller financing, furniture, supplies, reduction in debt obligations.) Receipt of boot will not disqualify an exchange, but the boot will be taxed to the Exchanger to the extent of the recognized gain.

Capital Gain Difference between the sales price of the Relinquished Property less selling expenses and the adjusted basis of the property.

Class “A” property Most prestigious buildings competing for premier office users with rents above average for the area. Buildings have high quality standard finishes, state of the art systems, exceptional accessibility, and a definite market presence.

Concurrent Exchange Also referred to as a simultaneous exchange when the Exchanger transfers out of the Relinquished Property and receives the Replacement property at the same time.

Constructive Receipt Control of the cash earnings without real physical possession by the Exchanger or their agent.

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Property photos shown here are being provided for educational purposes only, to illustrate the different property types available in the real estate market. These photos are not intended to represent any particular type of TIC offering nor are they intended to represent any current or future TIC offerings.