§1031 Exchange Terms / Glossary

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Deferral Tax on an exchange transaction is not paid at the time of transaction but at the time the replacement property is sold. Deferral is accomplished by substituting, or carrying over the basis of the taxpayer’s relinquished property to the replacement property making any necessary adjustments for additional consideration paid.

Deferred Exchange Refers to Non-simultaneous Exchange or Tax Deferred Exchange. See §1031 Exchange.

Direct Deeding is a transaction where a relinquished property or a replacement property is deeded directly to a buyer (not to a qualified intermediary first).

Disqualified Person refers to a seller or exchanger’s relatives (determined under income tax regulations) or agents (including your attorney and your accountant).

Due Diligence The practice of investigating a potential investment.

Escrow is an agreement between two or more parties, requiring that certain instruments, monies, or property be placed with a third party for safekeeping, pending the fulfillment of performance of a specified act or condition.

Exchangor The property owner(s) seeking to defer capital gains tax by utilizing IRC §1031 exchange.

Exchange Period refers to the period during which you must acquire replacement property in an exchange. The Exchange Period begins on the date on which the Exchanger transfers the first Relinquished Property and ends at midnight on the 180th day thereafter.

Identification Period is the 45-day period during which the Exchanger must identify replacement property in the exchange. The ID period begins on the day escrow is closed for the Exchanger’s relinquished property and ends at midnight of the 45th day thereafter.

In-Cash refers to the point in time when an investor has closed escrow on the relinquished property and is in the 45-day identification period of the §1031 exchange process. The money from the sale of the relinquished property is held by a Qualified Intermediary, waiting to be reinvested into the replacement property.

Intermediary is the disinterested third party that holds the funds from the relinquished property and releases the funds for the replacement property, and ensures that all IRS requirements are met. Also called “Accommodator” or “Facilitator”.

IRR (Internal Rate of Return) The rate of return that would make the present value of future cash flows plus the final market value of an investment or business opportunity equal the current market price of the investment or opportunity.

Like-Kind Property Any valid property for any other valid property if the property(s) are held for productive use in trade, business or for investment purposes.

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