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1031 Exhange - Terms

Terms You Should Know

BASIS: a.k.a. "adjusted basis," is the property's original purchase price plus the costs of improvements, less any depreciation deductions taken over the years. This amount is subtracted from the sales price of a property to determine the capital gain.

BOOT: the fair market value (F.M.V.) of an asset, other than "like" real property, offered in lieu of cash in an exchange, i.e., Trust Deeds, Land Contracts, goodwill, services rendered, etc. In some cases, even real property can be considered "boot". "Boot" is not tax-deferrable.

CAPITAL GAIN: profit derived from the sale or exchange of capital assets such as real estate, stocks or bonds.

DEBT RELIEF: in an exchange, equals loans relieved less loans assumed.

DELAYED EXCHANGE: a.k.a. "Starker Exchange" is a §1031 exchange in which the Exchanger acquires the Replacement Property after the Relinquished Property is transferred.

EQUITY: the difference between the F.M.V. and the existing loan(s) against the relinquished property.

EXCHANGER: a.k.a. "Taxpayer" is the person or entity that is exchanging one property for another in a §1031 Tax-Deferred Exchange.

FACILITATOR: a.k.a. "Qualified Intermediary"--typically, a company that helps structure and document the §1031 exchange.

IMPROVEMENT EXCHANGE: refers to a §1031 exchange where improvements to the Replacement Property are completed prior to the transfer of ownership to the Exchanger.

LIKE KIND PROPERTY: property used for productive use in a trade or business or held as an investment, thus being eligible property for a §1031 exchange.

RELINQUISHED PROPERTY: the property that the Exchanger transfers to another party in an exchange.

REPLACEMENT PROPERTY: the property that the Exchanger acquires in a exchange.

SIMULTANEOUS EXCHANGE: the disposition of the Relinquished Property and the acquisition of the Replacement Property must occur at exactly the same time.

TAX DEFERRED EXCHANGE: a transaction through which an Exchanger disposes of property and acquires other property within the requirements of Internal Revenue Code §1031, thereby postponing taxation on gain attributable to the transaction.

 

 

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