Adjusted Basis:
Equal to purchase price plus capital improvements, less depreciation. Transactions involving exchanges, gifts, probates, and trust distributions may impact a property's adjusted basis. A tax or legal advisor should determine the taxpayer's adjusted basis.
Basis:
Starting point for determining gain or loss in any transaction. In general, cost of the property.
Boot:
Any type of property which is not "like-kind," and which is received in an exchange. For example, cash, mortgage notes, a boat, or stock could be boot. Taxpayer must pay capital gains taxes on boot received. Any funds not used to purchase replacement property will also be considered boot.
Constructive Receipt:
If the taxpayer wishing to engage in a 1031 exchange has control over exchange proceeds at any point, the taxpayer may be deemed in constructive receipt of the funds and therefore ineligible for an exchange.
Deferral:
Capital gains tax is not paid until the taxpayer sells rather than exchanges a replacement property.
Direct Deeding:
Title is conveyed by EAT directly to property owners; EAT is never listed in the chain of title, and no additional transfer taxes are incurred.
EAT:
The exchange accommodating party who holds title to the parked property in a reverse exchange.
Exchange Period:
This term refers to the time allowed for a taxpayer to acquire replacement property in a delayed exchange, or to dispose of relinquished property in a reverse exchange. Delayed: period begins the day relinquished property is transferred.
Reverse:
period begins the day property is acquired by EAT. Period ends on the 180th day or the due date of tax returns (April 15 or applicable fiscal year), whichever is earlier.
Qualified Intermediary:
An entity that acts as qualified intermediary or "QI" for the taxpayer in return for a fee.
Realized Gain:
Gain that is not yet taxed. In a successful exchange, gain is realized but not recognized- therefore, its taxes are deferred.
Recognized Gain:
Amount of gain subject to tax when property is disposed for profit in a taxable transfer (sale).
Related Party:
IRC Section 267(b) and 707(b)(1) defines a related party as any person or entity bearing a relationship to the taxpayer, such as: family members; grantors or fiduciaries of any trusts; a corporation which is a member of the same controlled group or involves the same individual(s); corporations or partnerships where taxpayer holds more than 50% direct or indirect ownership of stock, capital, or profits.
Relinquished Property:
Property being sold by taxpayer in an exchange.
Replacement Property:
Property being purchased by taxpayer in an exchange.
Taxpayer:
Individual or business owning assets being exchanged. Same taxpayer must dispose of relinquished property and acquire replacement property. "Same" includes disregarded entities, such as single member limited liability company.
A Ten Thirty-One Exchange Corp. 2011 Botulph Road
Suite 200
Santa Fe, NM 87505
505-982-1031 phone
505-982-5211 fax
800-500-1031