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AMHERST 1031 GLOSSARY

§

§ 1031 Exchange

Basis / Adjusted basis

Boot

Concurrent exchange

Consideration

Constructive receipt

Debt relief

Delayed exchange

Depreciation recapture

Direct deeding

Non-qualifying property

Purchase price / Adjusted purchase price

EAT / Exchange Accommodation Titleholder

Exchange Period

Exchanger

Foreign property

Gain (or loss)

Identification period

Interim financing / Bridge loans

Intent

Intermediary

Like kind

QI / Qualified Intermediary

Qualifying property

Realized gain

Recognized gain

Related party

Relinquished property

Replacement property

Reverse exchange

Safe harbor

Sale price / Adjusted sale price

Starker exchange

Taxpayer

Vesting

§   Symbol for the word “Section”

§ 1031 Exchange

The swap of like-kind real estate or personal property (Relinquished Property) for other like-kind real estate or personal property (Replacement Property) structured pursuant to § 1031 of the Internal Revenue Code to defer payment of capital gains, depreciation recapture, and state taxes. Buying power is increased when the tax savings is reinvested in Replacement Property.           

Basis / Adjusted basis
           
The starting point for determining gain or loss when disposing of a property, it is the initial cost of property (or the basis brought into the property through an exchange) plus capital improvements less depreciation taken. When contemplating an exchange it is wise to confirm basis with your CPA and quantify the potential tax obligation.

Boot           

Any “consideration” (money, personal property, debt relief) received in an exchange that is not “like kind”. If you receive boot in an exchange, some or all of the boot may be taxable.

Concurrent exchange

An exchange in which the purchase closes the same day or first business day following the close of the sale

Consideration

Cash, notes and/or other property received as payment for property sold

Constructive receipt

Any control or access to control, whether or not exercised, of exchange proceeds during the exchange

Debt relief

When a loan is paid off at the close of a sale it is called “Debt Relief.” The debt you are relieved of must be replaced in the purchase. Non-replaced Debt Relief is equally as taxable as cash received and is called “boot”.

Delayed exchange

An exchange in which there is a period of time between the sale and the purchase of property

Depreciation recapture

If trading down to a lower priced property, or from a depreciable asset to raw land, and cash, debt relief or other non-like-kind consideration is received, depreciation deductions in excess of straight-line under § 1250 must be recaptured @ 25%.

Direct deeding

A deed from Exchanger (Seller) directly to Buyer of the property being sold, and/or a deed from Seller directly to Exchanger (Buyer)

EAT / Exchange Accommodation Titleholder

 The facilitating party who holds title to the parked property in a reverse exchange

Exchange Period

A period of 180 days following the transfer of the property being sold. The exchange must be completed within the Exchange Period.

Exchanger

Person(s) or entity that owns the asset (property) being exchanged; also called the taxpayer or client

Foreign property

Like-kind to and can be exchanged for other foreign property but cannot be traded for domestic property

Gain (or loss)

The difference between adjusted sale price and adjusted basis

Identification period

A period of 45 days following the transfer of the property being sold

A “Letter of Identification” naming potential properties to be purchased must be in the possession of Amherst 1031 within the Identification Period.

Interim financing / Bridge loans

Temporary financing often required during Reverse and Improvement Exchanges that must be in the name of the QI and guaranteed by the exchanger

Intent

§ 1031 includes a requirement that the intent of the exchanger is to hold purchased property for “long-term” investment

Intermediary

Also “Qualified Intermediary” or QI, facilitator, accommodator -- the party facilitating a tax deferred (forward) exchange

Like kind

In the context of real estate, like kind is any real property located in the United States that is not a personal residence or held for resale. A commercial building is like kind to a single family residence. Like kind is real property for real property.

Foreign real property is like kind to other foreign real property.

In many states including California a partnership interest is personal property, therefore not like kind to real property.

Non-qualifying property

Personal property, a personal residence, dealer property (for resale) and foreign property

Purchase price / Adjusted purchase price

For exchange purposes, the gross value of the property purchased is increased by applicable closing costs and referred to as the adjusted purchase price.

QI / Qualified Intermediary

Also known as the accommodator or facilitator, the QI oversees and facilitates all aspects of tax deferred exchanges

Qualifying property

Not a personal residence, not personal property, not dealer property (for resale), and not foreign property

For Personal Property Exchanges (a corporate jet for a corporate jet) the guidelines are based upon asset groups and classes and are far more restrictive.

Realized gain

The difference between the net consideration received from the sale of property and that property’s adjusted basis – but tax is not due and payable on realized gain until it is “recognized”

When an exchange defers 100% of the taxes, there is realized gain, but no recognized gain.

Recognized gain

The portion of realized gain reported for income tax purposes.

When realized gain is recognized, i.e. reported on a tax return, it is taxable and the tax is due and payable

Related party

Includes spouses, children, siblings, parents, grandparents, and greater than
50% ownership of a corporation or partnership

Does not include aunts, uncles, cousins, parents-in-law and children-in-law

Relinquished property

Property being sold in a tax deferred exchange

Replacement property

Property being purchased in a tax deferred exchange

Reverse exchange

Allows a client to purchase property before a buyer is found or can complete the purchase of property to be sold as part of an exchange. A warehousing (or parking) arrangement for either the property to be sold (Exchange First) or the property to be purchased (Exchange Last) can be used to allow the purchase of replacement property to occur prior to the sale of relinquished property.

Safe harbor

A guideline for safe conduct in a particular aspect of the tax code
If you do this your exchange will not be overturned.

Sale price / Adjusted sale price

For exchange purposes, the gross value of the property sold is reduced by certain closing costs and commissions and referred to as the adjusted sale price.

Starker exchange

The Starker vs. Commissioner Case ruled on by the Ninth Circuit Court of Appeals in 1979 set the precedent for delayed exchanges as we know them today. T.J. Starker sold forest land to Crown Zellerbach who held his sale proceeds for several years while Starker selected replacement property, which Crown Zellerbach then purchased in Starker’s behalf. The term “Starker exchange” is synonymous to “delayed exchange” in which there is a period of time, now not to exceed 180 days, between the sale of relinquished property and the purchase of replacement property.

Taxpayer

Often called the “Exchanger” or client, it is the person(s) or entity that owns the asset being exchanged

Vesting

The way title to property is held, i.e. Zachary Travis Evans, a married man as his sole and separate property, or Christine J. Dell, as Trustee of the Dell Family Trust dated July 23, 1994, or Taran Knox LLC, a Delaware limited liability company.

 

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