Tax Deferred Exchange Terminology
- Boot: Is the fair market value of non-qualified (not “Like-Kind”) property received in an exchange. (Examples: Cash, Notes, Seller Financing, Furniture, Supplies and reduction in debt obligations.) Receipt of boot will not disqualify an exchange, but the boot will be taxed to the Exchanger to the extent of the recognized gain
- Constructive Receipt: A term referring to the control of proceeds by an Exchanger even though funds may not be directly in their possession.
- Exchanger/ Investor: The property owner(s) seeking to defer capital gain tax by utilizing an IRC §1031 Exchange. (The Internal Revenue Code uses the term “Taxpayer”.)
- Like-Kind Property: This term refers to the nature or character of the property, not its grade or quality. Generally, real property is “Like-Kind” as to all other real property as long as the Exchanger’s intent is to hold the properties as an investment or for productive use in a trade or business. With regards to personal property, the definition of “Like-Kind” is much more restrictive.
- Qualified Intermediary: The entity that facilitates the exchange for the Exchanger. Although the Treasury Regulations use the term “Qualified Intermediary”, some companies use the term “Facilitator” or “Accommodator”.
- Relinquished Property: The property “sold” by the Exchanger. This is sometimes referred to as the “exchange property or “Down leg” property.
- Replacement Property: The property acquired by the Exchanger. This is sometimes referred to as the “acquisition” property or the “Up leg” property.
- Identification Period: The period during which the Exchanger must identify Replacement Property in the exchange. The identification Period starts on the day the Exchanger transfers the first Relinquished Property and ends at midnight on the 45th day thereafter.
- Exchange Period: The period during which the Exchanger must acquire Replacement Property in the exchange. The Exchange Period starts on the date the Exchanger transfers the first Relinquished Property and ends on the earlier of the 180th day thereafter or due date (including extensions) of the Exchanger’s tax return for the year of the transfer of the Relinquished Property.