Internal Revenue Code, Section 1031, states that neither gain nor loss is recognized if property held for investment or for productive use in a trade or business is exchanged for property held for investment or for use in a trade or business. There are several types of 1031 exchange methods used today, including delayed exchanges, simultaneous exchanges, and reverse exchanges.

A qualified intermediary who agrees to assist the exchanger to effect a tax-deferred exchange. Also described as a facilitator or an intermediary, a qualified intermediary cannot be the taxpayer or a related party, or an agent of the taxpayer.

Generally speaking in a standard purchase of real property, the adjusted basis is equal to the purchase price plus capital improvements less depreciation. Transactions involving exchanges, gifts, probates and receiving property from a trust can have an impact on calculating the property's adjusted basis.  The taxpayer's C.P.A. or tax advisor is the party to look to for these types of questions.

Boot is any type of Personal Property received in a Real Property transaction 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 if any funds are not used in purchasing the Replacement Property, that also will  be called boot.

Generally speaking, this is the difference between the sales price of the Relinquished Property less selling expenses and the adjusted basis of the property.

The critical question in a delayed exchange is whether the Exchanger has control over the proceeds during the exchange period.  Any type of account to maintain exchange proceeds must substantially limit and restrict the Exchanger's control to avoid having the exchange disallowed.

Also called non-simultaneous, deferred, and Starker. A delayed exchange is when the Replacement Property is received after the transfer of the Relinquished Property.  All potential Replacement Properties must be identified within 45 days from the transfer of the Relinquished Property and the Exchanger must receive all Replacement Properties within 180 days or the due date of the Exchanger's tax return, whichever occurs first.

At the direction of the accommodator, title passes directly to the ultimate owners without the accommodator being in the chain of title.

Within forty-five days from the close of the Relinquished Property the Replacement Property must be identified by one of the three adopted rules.

Refers to the nature of the property of Exchanger gives up or receives in the exchange, such as real property for real property. It does not have to be similar in use such as raw land for raw land. The land could be exchanged for any other real property that will be used in a trade or business or held for investment.

Refers to a gain that is not necessarily taxed. In a successful exchange the gain is realized by not recognized and therefore not taxed.

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

Relinquished Property

The property given up by the Exchanger to start the 1031 exchange transaction.  This is Phase One of the transaction.

Replacement Property

The property the Exchanger acquires in a 1031 exchange or Phase Two of the transaction.

Also referred to as a concurrent exchange when the Exchanger transfers out of the Relinquished Property and receives the Replacement Property at the same time.