Tax Deferred Exchange Terminology
The face amount of money or debt and the
fair market value of non like-kind property received in an exchange.
The fact that boot is received does not disqualify an exchange, however
the boot will be subject to capital gains tax to the extent of
recognized gain on the sale of relinquished property.
Income not actually received or possessed is
constructively received and reportable if it is within the Exchanger's
Statutory Trust (DST)
A DST is a separate legal entity created as a trust under Delaware
statutory law. Delaware law permits a very flexible approach to the
design and operation of the entity. A DST may be used in in a Section
1031 tax-deferred exchange private placement program if structured in
accordance with the provisions of IRS Revenue Ruling 2004-86.
The taxpayer seeking to defer capital gains tax under the provisions
of IRC Section 1031.
Exchange Period The
period of time in which the Exchanger must acquire title to replacement
property to qualify under the safe-harbor for the exchange. The
period ends on the earlier of the day 180 days after the relinquished
property is transferred or the due date (including extensions) of the
Exchanger's federal income tax return for the year in which the
Exchanger gave up the property in the exchange.
Identification Period The
45 day period in which the Exchanger must identify replacement property
for exchange. This period begins on the day of title to the
relinquished property and ends at midnight on the 45th day following the
The term like-kind has reference to the
nature and character of the property and not to its grade or quality, so
that one kind or class of property may not be exchanged, under section
1031, for property of a different class or find. Accordingly, real
property should not be exchanged for personal property. As a
general rule, as long as the purpose of the taxpayer is to hold the
property as an investment of for use in a trade or business, real
property will be like kind with other real property.
consists of the liabilities assumed or taken
subject to in the exchange. It is not as recognizable as cash or
other non like-kind property. The taxpayer is considered to have
received mortgage boot even if the buyer refinances the property as part
of the exchange and used the proceeds to pay-off the taxpayers mortgage.
A taxpayer who receives money or
nonqualifying property in consider to have received property boot.
Qualified Intermediary A
third-party entity that serves to facilitate the section 1031 exchange
on behalf of the Exchanger. Also know as the facilitator or
accommodator. The qualified intermediary will work under an
agreement with the Exchanger to take possession of proceeds from the
escrow of the relinquished property and utilize those same proceeds to
fund the escrow of the replacement property. This safe-harbor
prevents the Exchanger from having constructive receipt of the funds
from the sale of the relinquished property.
Investment Trust (REIT)
A REIT is a corporate designation which, to the extent it abides by
specific rules and restrictions, is not required to pay corporate income
taxes. All dividend distributions made by the REIT to its investors are
taxed only at the investor level hereby avoiding any double taxation.
(also referred to as the exchange property or down-leg property) is the
property originally owned by the Exchanger and sold by the Exchanger in
the like-kind exchange process.
(also referred to as acquisition property or up-leg property) is the
property acquired by the Exchanger in the like-kind exchange process.
co-ownership structure under which an investor may own an undivided
fractional interest in an entire property and participate in a
proportionate share of the net income, tax shelters, and growth.
For more information on this matter or if we
may be of further assistance please contact us for a free consultation
by calling us at 1 (800) 781-1031
or (714) 939-1031 or
by e-mail at
Security investments offered
through Sandlapper Securities, LLC. (Member FINRA, SIPC)