Las Vegas Real Estate
1031 Tax Deferred Exchanges

Glossary of Terms

1031 Exchange - Internal Revenue Code, Section  1031, states that neither gain nor loss is recognized if property held for investment or for productive use in a trade or business is exchanged for property held for investment or for use in a trade of business. There are several types of 1031 exchange methods used today, including delayed exchanges, simultaneous exchanges and reverse exchanges.

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

Adjusted Rate - Generally speaking, in the standard purchase of real property, the adjusted basis is equal to the purchase price capital improvements less depreciation. Transactions involving exchanges, gifts, probates, and receiving property from a trust can have an impact on calculating the property's adjusted basis. The taxpayer's CPA or tax advisor is the party to look to for answers to these types of questions.

Boot - Boot  is any type of Personal Property received in a Real Property transaction that is not like kind, such as cash, mortgage notes, a boat or stock.  The Exchanger pays taxes on the boot to the extent of recognized capital gain.  In an exchange if any funds are not used in purchasing the replacement property, that also will be called  boot.

Capital Gain - Generally speaking, this is the difference between the sales price of the Relinquished Property less selling expenses and the adjusted basis of the property.

Constructive Receipt - The critical question in a delayed exchange is whether the Exchanger has control over the proceeds during the exchange period.  Any type of account to maintain exchange proceeds must substantially limit and restrict the Exchanger's control to avoid having the exchange disallowed.

Delayed Exchange - Also called non-simultaneous, deferred and Starker.  A delayed exchange is when the Replacement Property is received after the transfer of the Relinquished Property.  All potential Replacement Properties must  be identified within 45 days from the transfer of the Relinquished Property and the Exchanger must receive all Replacement Properties within 180 days or the due date of the Exchanger's tax return, whichever comes first.

Direct Dealing - At the direction of the accommodator, title passed directly to the ultimate owners without the accommodator being in the chain of title.

Identification Period - Within 45 days from the close of the Relinquished Property, the Replacement Property must be identified by one of the three adopted rules; See Adopted Treasury Regulations Concerning Identification of Replacement Property.

Like Kind Property - Refers to the nature of the property the Exchanger gives up or receives in the exchange, such as real property for real property.  It does not have to be similar in use such as raw land for raw land.  The land could be exchanged for any other real property that will be used in a trade of business or held for investment.

Realized Gain - Refers to a gain that is not necessarily taxed.  In a successful exchange the gain is realized but not recognized and therefore not taxed.

Recognized Gain - Refers to the amount of gain which is subject to tax when property is disposed of at a gain or profit in the taxable transfer.

Relinquished Property - The property sold.  The property given up by the Exchanger to start the 1031 exchange transaction.  This is the Phase One of the transaction.

Replacement Property - The property purchased.  The property the Exchanger acquires in a 1031 exchange or Phase Two of the transaction.

Simultaneous Exchange - Also referred to as a concurrent exchange when the Exchanger transfers out of the Relinquished Property and receives the Replacement Property at the same time.

Transfer Tax - A tax assessed by a city, county or state on the transfer of property that may be based on equity or value.  The use of direct deeding in an exchange avoids additional transfer tax.

Back to 1031 Exchange Main Page

Millie Fine
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