Qualified Intermediary: A non-disqualified party that facilitates the documentation for the exchange and holds the funds from the sale of the relinquished property pursuant to IRC Section 1031. Also known as QI, facilitator, accommodator.
- Exchanger: The party that is benefiting from tax deferral through IRC Section 1031. Also known as the taxpayer or investor.
- Relinquished Property: The property being sold by the taxpayer in a 1031 exchange. Also known as Phase1 or Downleg.
- Replacement Property: The property being purchased by the taxpayer in a 1031 exchange. Also known as Phase 2 or Upleg.
- Delayed Exchange: An exchange where the closing of the relinquished property can occur up to 180 days after the closing of the replacement property.
- Exchange Period: The period of time between the relinquished property closing and acquisition of the replacement property. The Exchange Period ends on a date that is 180 days after the relinquished property closes, or the due date on which the tax return is due for the year the relinquished property was sold, if that is sooner. For exchanges closing in the final quarter of the year, the taxpayer will need to file an extension of the filing of their return to have the full 180-day time frame.
- Identification Period: The 45-day timeframe after the transfer of the relinquished property in which the taxpayer must identify in writing replacement properties. Proper identification of replacement property is a requirement for a valid exchange and the investor can only acquire property which has been properly identified during the 45-day identification period.
- Like-Kind Property: In the context of real estate, like-kind exchanges are valid between and among several different types of investment property, including bare land, commercial property, industrial buildings, retail stores, apartments, residential rentals, even leasehold interests exceeding 30 years. Personal property exchanges are much more restrictive than real property exchanges with regard to the interpretation of like-kind.
- Basis: The starting point for determining gain or loss in any transaction. In general, basis is the cost of the taxpayer’s property, plus capital improvements less depreciation.
- Boot: Receiving property that is not considered “like-kind” which includes cash or non-cash consideration, debt relief (mortgage boot), or promissory notes. If you receive boot in an exchange it is likely that all or some portion of the boot will be taxed.
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