An undivided fractional interest or partial interest in property (Tenant-In-Common, Delaware Statutory Trust, etc.)

The period of time during which the taxpayer must identify potential replacement properties in his or her tax-deferred, like-kind exchange. The period is 45 calendar days from the transfer of the taxpayer’s relinquished property and is not extended due to holidays or weekends.

A tax-deferred, like-kind exchange whereby the Qualified Intermediary and/or Exchange Accommodation Titleholder acquires title and holds title to the replacement property on behalf of taxpayer, during which time new or additional structures or improvements are constructed or installed on or within the replacement property. Also known as a Build-To-Suit Exchange.

Section 1031 of the Internal Revenue Code allows a taxpayer to defer his or her capital gain tax and depreciation recapture tax when he or she exchanges relinquished property for like-kind or like-class replacement property.

Refers to the nature or character of the property and not to its grade or quality. Personal property listed or contained within the same general asset classification or product classification (“SIC Code”) will be considered to be of like-class and therefore like-kind.

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.

Property that is exchangeable with another property. Refers to the nature or character of the property and not to its grade or quality.

An exchange that contains different types of properties, such as depreciable tangible personal property, real property, and intangible personal property. In a Mixed Property Exchange, relinquished properties are segmented in like-kind groups and matched with corresponding like-kind groups of replacement properties.

When you assume debt on your replacement property that is less than the debt on your relinquished property, you receive mortgage boot or mortgage relief. Generally speaking, mortgage boot received triggers the recognition of gain and is taxable, unless offset by cash boot added or given up in the exchange. (See Boot.)

Disposition and/or acquisition of more than one property in a Section 1031 Exchange.

A property’s gross income (scheduled rents and 100% vacancy factor) less its total annual expenses (including management costs, utilities, services, repairs, a vacancy factor and a credit loss factor) plus any additional other income (vending machines, coin laundry operations, etc.). Principal and interest payments on the mortgage and tax liability are not included.

A process or procedure whereby either the taxpayer’s relinquished property or replacement property is acquired by an Exchange Accommodation Titleholder (EAT) in order to facilitate a reverse and/or build-to-suit tax-deferred, like-kind exchange transaction pursuant to Treasury Revenue Ruling 2000-37.

An exchange that entails receiving cash, excluded property and/or non-like-kind property and/or any net reduction in debt (mortgage relief) on the replacement property, as well as an exchange of qualified, like-kind property. In the case of a partial exchange, tax liability would be incurred on the non-qualifying portion and capital gain deferred on the qualifying portion under Internal Revenue Code Section 1031.

A tax that is owed by the taxpayer, of which part of the tax is paid to the IRS when taxes are due. The remaining tax is postponed to a time when a new taxable event occurs.

A tax-deferred transfer of personal property (relinquished property) for other personal property (replacement property) that are of like-kind or like-class to each other.

Exclusion from capital gain tax on the sale of principal residence of $250,000 for individual taxpayers and $500,000 for couples, filing jointly, under Internal Revenue Code Section 121. Property must have been the principal residence of the taxpayer(s) 24 months out of the last 60 months. In the case of a dual-use property, such as a ranch, retail store, duplex or triplex, the taxpayer can defer taxes on the portion of the property used for business or investment under Internal Revenue Code Section 1031 and exclude capital gain on the portion used as the primary residence under Section 121.

An escrow account, wherein the Escrow Agent (Diversified Title Insurance Company) is not the taxpayer or a disqualified person and that limits the taxpayer rights to receive, pledge, borrow or otherwise obtain the benefits of the tax-deferred, like-kind exchange cash balance and/or other assets from the sale of the relinquished property in compliance with the Treasury Regulations. The Qualified Escrow Account also ensures that the taxpayer’s exchange funds and/or assets are held as fiduciary funds and are therefore protected against claims from potential creditors of the Qualified Intermediary.

The contractual arrangement between the taxpayer and the Exchange Accommodator Titleholder whereby the EAT holds a parked property pursuant to Revenue Procedure 2000-37.

An unrelated party (TransUnion Exchange Corporation) who participates in the tax-deferred, like-kind exchange to facilitate the disposition of the taxpayer’s relinquished property and the acquisition of the taxpayer’s replacement property. The Qualified Intermediary has no economic interest except for any compensation (exchange fee) it 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 Treasury Regulations, but the Qualified Intermediary is also known as the Accommodator, Facilitator or Intermediary.

In a 1031 exchange, the taxpayer must have the intent to hold the property for investment or for income production in order to satisfy the qualified use test.

Land and buildings or land improvements resulting from human effort including buildings and machinery sited on land and various property rights over the preceding (ex. homes, apartment buildings, shopping centers, commercial buildings, factories, condominiums, leases of 30-years or more, quarries and oil fields.) All types of real property are considered like-kind and thus exchangeable for all other types of real property in a 1031 exchange. In general, state law determines what constitutes Real Property.

Individuals and/or business entities determined by Section 267(b) of the Internal Revenue Code as having a special connection to the taxpayer/exchanger. A transaction between a related party and an exchanger may be restricted or prohibited in a 1031 exchange. Related parties include family members (spouses, children, siblings, parents or grandparents, but not aunts, uncles, cousins or ex-spouses) and a corporation in which you have more than a 50% ownership; or a partnership or two partnerships in which you directly or indirectly own more than a 50% share of the capital or profits.

The property to be sold or disposed of by the taxpayer in the tax-deferred, like-kind exchange transaction.

The like-kind property to be acquired or received by the taxpayer in the tax-deferred, like-kind exchange transaction.

A tax-deferred, like-kind exchange transaction whereby the replacement property is acquired first and the disposition of the relinquished property occurs at a later date.

The EAT can make improvements to the replacement property before transferring it to the taxpayer as part of a Reverse Exchange.

Guidelines that must be followed when identifying properties in a 1031 deferred exchange (see the 95% Rule, 200% Rule, and Three Property Rule).

A trust that invests in real estate and mortgages and passes income, losses, and other tax items to its investors. REITS are typically classified as a security and are therefore not exchangeable.

As described by the IRS, any person bearing a relationship to the taxpayer (spouse, child, sibling, parent, grandparents but not aunts, uncles, cousins or ex-spouses), a corporation in which the exchanger has more than a 50% ownership, and a partnership in which the exchanger owns more than a 50% share of the capital or profits.

Treasury Regulations provide certain Safe Harbors that assist Qualified Intermediaries and taxpayers in structuring tax-deferred, like-kind exchange transactions so they can be assured that no constructive receipt issues will be encountered during the exchange cycle.

When the buyer of a property gives the seller of the property a note, secured by a deed of trust or mortgage. In a Section 1031 Exchange, seller carry-back financing is treated as boot, unless it is sold at a discount on the secondary market or assigned to the seller as a down payment on the replacement property.

The former practice of transferring or deeding title to the taxpayer’s relinquished property to the Qualified Intermediary first and then sequentially and immediately transferring or deeding title from the Qualified Intermediary to the buyer in order to properly structure a tax-deferred, like-kind exchange prior to the issuance of Treasury Revenue Ruling 90-34. Sequential deeding is used only in special tax-deferred, like-kind exchange transactions today that require special structuring. (See Direct Deeding for the current day practice)

A tax-deferred, like-kind exchange transaction whereby the disposition of the relinquished property and the acquisition of the replacement property close or transfer at the same time. A Simultaneous Exchange is also referred to as a Concurrent 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.

A depreciation method that spreads the cost or other basis of property evenly over its estimated useful life.

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 Treasury Regulations in order to defer Federal, and in most cases state, capital gain and depreciation recapture taxes.

Client, investor, exchanger.

A separate, undivided fractional interest in property. A tenancy-in-common interest is made up of two or more individuals, who have equal rights of possession. Co-tenants’ interests may be equal or unequal and may be created at different times and through the use of different conveyances. Each co-tenant has the right to dispose of or encumber his or her interest without the agreement of the other co-tenants. He or she cannot, however, encumber the entire property without the consent of all of the co-tenants. In an Internal Revenue Code Section 1031 Exchange, an taxpayer may acquire a tenancy-in-common interest with one or more other investors, as his or her like-kind replacement property. For purposes of Internal Revenue Code Section 1031 Exchanges, a co-tenancy must only engage in investment activities, including supporting services that would typically accompany the investment. Co-tenants that are engaging in separate business activities are treated as partnerships by the I.R.S.

In 1031 tax exchanges the exchanger may identify up to three properties without regard to their value.

In tax deferred exchanges, the exchanger may identify any number of properties without regard to their value as long as the exchanger purchases 95% of the fair market value of the properties identified.

The exchanger may identify more than three properties provided their fair combined market value does not exceed 200% of the relinquished property in a 1031 exchange.