Glossary of Terms
ACCOMMODATOR or QUALIFIED INTERMEDIARY or FACILITATOR
- A person or entity who assists the exchanger to effect a tax-deferred
exchange by preparing the necessary agreements, holding the exchange
proceeds and acting as the principal in the sale of the relinquished
property and the purchase of the replacement property. The
facilitator/intermediary/accommodator cannot be the taxpayer, a related
party or an agent of the taxpayer.
- Simply stated, the adjusted basis is equal to the purchase price,
plus capital improvements, less depreciation. Transactions involving
exchanges, gifts, probates and trust distributions may impact the
property's adjusted basis. The Exchanger's tax and legal advisor is the
party to look to determine adjusted basis.
- The starting point for determining gain or loss in
any transaction. In general, basis is the cost of the property.
- Boot is any type of property received in an exchange that is not like
kind, such as cash, mortgage notes, a boat, or stock. 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
be called 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.
- If the Exchanger has control over the exchange proceeds or property during the exchange period he
may be deemed in constructive receipt. If the Exchanger actually or
constructively receives the exchange proceeds or property, the exchange
may not qualify under IRC §1031.
- The capital gains tax is not paid until such time (i.e. it is
“deferred”) as the Exchanger sells the replacement property without
engaging in another tax deferred exchange.
- At the direction of the accommodator, title
is conveyed directly to the ultimate owners without the accommodator being in the
chain of title, thus avoiding the imposition of additional transfer tax.
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 most
cases, the EAT is affiliated with the Qualified Intermediary handling
the reverse exchange.
- The time allowed for the Exchanger to acquire the Replacement Property in a
delayed exchange, or the time allowed to dispose of the
Relinquished property in a reverse exchange. In a delayed exchange, the
exchange period starts on the day the Relinquished Property is transferred.
In a reverse exchange, the exchange period starts on the day the property is acquired by the
EAT. The exchange period ends on the earlier of the 180th day after the transfer if
no extension is applied for then on the day the Exchanger's
tax return is due - often April 15th if the Exchanger is not an entity
on a different fiscal tax year.
- Within 45 days from the close of the relinquished property the replacement
property must be identified in accordance with one of the three adopted
rules. In a reverse exchange, the relinquished property must be
identified within 45 days from the EAT's acquisition of the replacement
LIKE KIND PROPERTY
- Refers to the nature or quality of the property you give up or receive in the
exchange, such as real property for real property. 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. Real property located in the
United States and real property located outside of the United States is
not like kind. Personal Property must be either the same General Asset
Class or Product Class.
Old Republic Exchange, LLC
- A single member LLC acting as the EAT for Old Republic Exchange
Company (Old Republic Exchange) in reverse exchanges.
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.
- Refers to gain that is not yet taxed. In a successful exchange the gain is
realized but not recognized and therefore not taxed.
- 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.
- 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, e.g., 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
REPLACEMENT PROPERTY (Property Bought)
- The property the Exchanger acquires in a 1031 exchange or Phase Two of
- 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 transfer tax.