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Tax Deferred Exchange Terminology
As with any other specific area of real estate law, tax deferred exchanges under IRC 1031 have their own language, which may be confusing to those who are unfamiliar with these transactions. The following are some of the exchange terms and phrases that are often used with their plain-English interpretations.
1. Boot-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.
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Fred Hanselmann ©
Rocky Mountain Photography
hanselmannphotography.com |
2. Constructive Receipt-A term referring to the control of proceeds by an Exchanger even though funds may not be directly in their possession.
3. Exchanger-The property owner(s) seeking to defer capital gain tax by utilizing an IRC 1031 exchange. (The Internal Revenue Code uses the term Taxpayer.)
4. 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. (See Brief Exchange, Like-Kind Property.)
5. 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.
6. Relinquished Property-The property sold? by the Exchanger. This is also sometimes referred to as the exchange? property or the down legal property.
7. Replacement Property -The property acquired by the Exchanger. This is sometimes referred to as the acquisition? property or the up legal? property.
8. 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.
9. 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 the due date (including extensions) of the Exchanger's tax return for the year of the transfer of the Relinquished Property.
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Jeffery James McClintock
Real Estate Advsior-Broker |
RealEstateColorado.Net, Inc. is available to assist Exchangers and their advisors with their exchange strategies. The Exchanger is always advised to discuss the intended exchange with their legal or tax advisor. RealEstateColorado.Net, Inc or it's Brokers cannot provide advice regarding specific tax consequences. Investors considering an IRC 1031 tax deferred exchange should seek the counsel of their accountant and attorney to obtain professional and legal advice.
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