ADJUSTED BASIS
The adjusted basis is equal to the purchase price, plus capital improvements, minus depreciation. The Exchanger's tax and legal advisors can accurately determine a property's adjusted basis.

BASIS
The starting point for determining gain or loss in any transaction. Sometimes called the cost basis, it is the original purchase price of the property.

BOOT
Boot is any non-qualified property — property not of "like-kind" — received in an exchange, such as cash, mortgage notes, assets of a different class, or stock. Receipt of boot does disqualify the entire exchange. Rather, the Exchanger pays taxes on the boot to the extent of recognized capital gain. In an exchange, any funds not used to purchase the replacement property will also be boot.

CAPITAL GAIN
Generally speaking, this is the difference between the sales price of the relinquished property — less selling expenses — and the adjusted basis of the property.

CONSTRUCTIVE RECEIPT
If the Exchanger has control over the exchange proceeds or property during the exchange period, he may be deemed in constructive receipt even though the funds are not in his actual physical possession. For example, if the Exchanger's attorney is holding the exchange funds on his behalf, the Exchanger is considered to be in constructive receipt of those funds. If the Exchanger actually or constructively receives the exchange proceeds or property, the exchange may be disqualified under IRC §1031.

DEFERRAL
The capital gains tax is not paid until the time (i.e. it is "deferred") the Exchanger sells the replacement property without engaging in another tax deferred exchange. At this time, the deferred capital gains taxes must be satisfied.

DIRECT DEEDING
At the direction of the QI, title is conveyed directly to the ultimate owners without the QI being in the chain of title. Specifically permitted by the Regulations, this avoids additional transfer taxes.

EXCHANGE ACCOMMODATION TITLEHOLDER ("EAT")
The entity that holds title to either the Relinquished Property or the Replacement property in connection with a Reverse Exchange. In some cases, the EAT is affiliated with the QI handling the reverse exchange.

EXCHANGE PERIOD
Defined by the statute and Regulations as the period within which the Exchanger must complete their exchange. The Exchange Period begins upon the transfer of the Relinquished Property (i.e., the close of escrow, or the closing date, depending on local custom), and ends at midnight on the 180th day thereafter, or the due date (including extensions) of the Exchanger's tax return for the year in which the exchange was begun. The Exchange Period cannot be extended except by presidentially declared emergency. In a reverse exchange, the exchange period starts on the day the property is acquired by the EAT.

EXCHANGER or EXCHANGOR
The taxpayer(s) seeking to defer capital gains tax by utilizing an IRC §1031 exchange. These terms are used interchangeably in common exchange practice. Note that the Internal Revenue Code and the Regulations refer to the "Taxpayer".

IDENTIFICATION PERIOD
Defined by the statute and Regulations as the period within which the Exchanger must identify Replacement Property in their exchange. The Identification Period begins upon the transfer of the Relinquished Property (i.e., the close of escrow, or the closing date, depending on local custom), and ends at midnight on the 45th day thereafter. The Identification Period cannot be extended except by presidentially declared emergency. Replacement Property must be identified in accordance with one of the three rules contained in the Regulations. In a reverse exchange, the relinquished property must be identified within 45 days from the EAT's acquisition of the replacement property.

LIKE-KIND PROPERTY
Refers to the nature or character of the property in the exchange, not its quality. Generally speaking, all real property is "like-kind" to all other real property, so long as the properties are held for investment purposes or used in the Exchanger's trade or business. Real property does not have to be similar in use such as raw land for raw land. Raw land may be exchanged for any other real property that will be used in a trade or business or held for investment. However, real property located in the United States is not like-kind to real property located outside of the United States. The determination of "like-kind" with regards to Personal Property is much more restrictive, however. Personal Property used in an exchange must be either the same General Asset Class or Product Class.

QUALIFIED EXCHANGE ACCOMMODATION AGREEMENT ("QEAA")
A written agreement whereby the EAT agrees to purchase and hold title to the replacement property or relinquished property until the Exchanger is able to sell the relinquished property.

QUALIFIED INTERMEDIARY ("QI") or ACCOMMODATOR or FACILITATOR
Defined in the Regulations as a party to an exchange agreement with the Taxpayer, who is not a disqualified party. The QI facilitates the exchange by holding the exchange funds for the Exchanger, preparing the necessary exchange documentation, and other functions as determined by the statute, Regulations, and case law. The QI cannot be the Exchanger, a related party, or an agent of the Exchanger.

REALIZED GAIN
Refers to gain that is not yet taxed. In a successful 1031 exchange, the gain is realized but not recognized and therefore not taxed.

RECOGNIZED GAIN
Refers to the amount of gain that is subject to tax when property is disposed of at a gain or profit in a taxable transfer.

RELATED PARTY
Any person bearing a relation to the taxpayer as described in IRC Section 267(b) or Section 707(b)(1), including family members such as siblings, ancestors, and lineal descendants. An individual is considered to be related to an entity, such as a partnership, LLC or corporation, if they own more than 50% of that entity.

RELINQUISHED PROPERTY (Property Sold)
The property given up by the Exchanger in the 1031 exchange transaction. This portion of the exchange transaction is sometimes referred to as Phase One or the Downleg.

REPLACEMENT PROPERTY (Property Bought)
The property the Exchanger acquires in a 1031 exchange transaction. This portion of the exchange transaction is sometimes referred to as Phase Two or the Upleg.

TRANSFER TAX
A tax assessed by a city, county or state on the transfer of property that may be based on equity or value. The use of direct deeding in an exchange avoids additional (or duplicate) transfer tax.