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
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
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