Internal Revenue Code Section 1031 states that "no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held for productive use in a trade or business or for investment."

The documents commonly used in a LKE are: (1) Exchange Agreement; (2) Identification of Replacement Property; (3) Assignment of Relinquished Property Contract; (4) Notice of Assignment of Relinquished Property Contract; (5) Assignment of Replacement Property Contract; (6) A Notice of Assignment of Replacement Property Contract.

The taxpayer may identify an unlimited number of properties so long as the aggregate fair market value of them does not exceed 200 percent of the fair market value of the relinquished property. If a taxpayer falls within this rule, then there is no failure of the exchange, even if the taxpayer does not close on all the properties identified.

The taxpayer may identify up to three potential replacements from which the selection will be made. The taxpayer may acquire one or all of them without respect to priority.

Same as intermediary, facilitator, or Qualified Intermediary. The party who facilitates a tax-deferred exchange by acquiring and selling property in an exchange to aid the taxpayer in complying with Section 1031 and all applicable rules.

Having direct access to exchange funds or other property. Actual receipt of exchange funds during the exchange period is cause for disqualification of the tax deferred exchange. Compare to Constructive Receipt, below.

The basis of the property adjusted for any capital improvements made to the property or depreciation taken. To calculate the adjusted basis, take the original cost basis (the cost of the property), and add the cost of any capital improvements that have been made to the property during the term of ownership. Then subtract any depreciation taken on the property during the same period. Once the adjusted basis is known, gain or loss can be computed on a transaction.

Agreement between the Exchanger and the Qualified Intermediary. This agreement is a required Safe Harbor under the deferred exchange regulations when there are direct transfers of qualifying Relinquished Property and/or Replacement Property.

When a taxpayer is doing a delayed exchange, it has to link the sale and the later purchase together as an exchange of the one for the other. This is accomplished by transferring the relinquished property to the qualified intermediary and receiving back the replacement property from the qualified intermediary. In order to make this process as simple as possible, the IRS regulations state that by the taxpayer assigning the rights under the sale and purchase contracts to the qualified intermediary, for tax purpose that is sufficient to deem the properties to be exchanged between the taxpayer and the qualified intermediary.

The value of the taxpayer's investment in a property.

In an exchange, the deferral of the tax on the gain is accomplished by requiring the taxpayer to carry over (substitute) the basis of the relinquished property into the replacement property, with appropriate adjustments for any additional consideration is paid. (See Deferral)

The day on which the taxpayer transfers or causes to be transferred the relinquished property to the relinquished property buyer.

A one-time “bonus” depreciation allowance claimed against the starting Tax Basis of qualifying property. Eligible to be claimed in the year the eligible property is placed in service, the allowance is an additional deduction computed after any Section 179 expense (if applicable) and before any MACRS depreciation deductions are calculated.

Unlike property or non-qualifying property such as securities, cash, notes, partnership interests, etc. Taxpayer who receives boot ("unlike" property) will have to recognize gain to the extent of the net boot received or realized gain, whichever is less. In exchanges, there are two types of boot: cash boot and mortgage boot.

This refers to a type of exchange done where some of the proceeds of the sale of the relinquished property will be used to cause improvements to be placed on the land constituting the replacement property so that the taxpayer can complete the trade where both the value of the land and of the improvements will count for the amount the taxpayer traded for. These types of exchanges are structured pursuant to IRS Rev. Proc. 2000-37 and are sometimes known as “property parking exchanges” and are sometimes known as “property parking exchanges” and require the exchange facilitator to take on an additional role as a Qualified Exchange Accommodation Titleholder.

The purchaser of the taxpayer's relinquished property.

Any asset held by a taxpayer except certain property excluded under IRC Section 1221. Capital assets are often tangible property which cannot easily be converted into cash and which are usually held for a long period, including real estate, buildings, machinery, fixtures, furniture and equipment.

Calculation of the difference between the sales price of the relinquished property less selling expenses and less the adjusted basis of the relinquished property.

Tax imposed on a gain from the sale or disposition of a capital asset.

Cash, or anything else of value, received by the taxpayer.

Violation of the G(6) limitation wherein the taxpayer or the taxpayer’s agent obtains direct or indirect control over the exchange proceeds through an agent or employer or other person during the exchange period.

The day-to-day administration of a periodic payment contract which includes sending monthly payment statements and collecting monthly payments, maintaining records of payments and balances, remitting funds to the lender, and following up on delinquencies.

A provision in a purchase and sale agreement that states that either the buyer or seller intends to conduct a 1031 exchange and reserves the right to assign its interest in the purchase and sale agreement to a qualified intermediary. The clause also typically elicits the other parties to assist in signing applicable 1031 documents.

Taxpayer's cost of acquiring the property.

Also known as peer-to-peer lending, investors apply online and lend money to a business and are repayed with interest on these loans.

Deferral is accomplished by substituting, or carrying over, the basis of the taxpayer’s relinquished property to the replacement property, making any necessary adjustment for additional consideration paid. The tax on an exchange transaction is not paid at the time of the transaction. Rather, it is deferred, and paid at the time the replacement property is ultimately sold.

A 1031 exchange conducted under the safe harbor 1991 Treasury Regulations wherein the replacement property is received up to 180 days after the disposition of the relinquished property. Typically what people mean when referring to a 1031 exchange, Starker exchange, like-kind exchange, delayed exchange, etc.

A Delaware Statutory Trust is a real estate investment vehicle that provides investors with access to investment grade real estate that is generally larger than they could have acquired on their own. The Taxpayer acquires a fractional interest (see below) in the property. Use of DSTs in 1031 exchanges was approved by the IRS in Revenue Procedure 2004-86.

Also known as Starker Exchange. The taxpayer disposes of the relinquished property on one day, and then has up to 180 days from that date (or the due date of taxpayer’s income tax return, including extensions, whichever event occurs first) to acquire the replacement property. The transaction must be an exchange of property for property, and not a sale of property for money that is used to acquire replacement property. An exchange occurs when the taxpayer (through the use of a Qualified Intermediary) conveys relinquished property to the same party from whom the taxpayer acquires the “replacement property.”

Also tax basis. Generally a property’s acquisition cost, subject to immediate reductions by costs to place in service and other deductions / credits. This beginning basis serves as a starting point for ongoing reductions through allowances for depreciation. After accounting for depreciation allowances, the tax basis is often referred to as the property’s adjusted tax basis.

The gradual reduction in value of an asset over time. The IRS requires investors to depreciate real estate (and certain other assets) over a specified period of time. Residential real estate uses a 27.5 year schedule, and commercial real estate uses a 39 year schedule.

The tax deduction for writing off the cost of theoretical wear and tear of property and business-assets over an IRS-specified number of years.

A procedure for collecting income tax on a gain realized by a taxpayer when disposing of an asset that had previously provided an offset to ordinary income for the taxpayer through depreciation. The difference between the asset's sale price and tax basis is "recaptured" by being reported as income.

The written identification notice prepared and delivered by the taxpayer in conformity with Treasury Regulations Section 1.1031(k)-1(c) and timely delivered to the qualified intermediary unambiguously identifying the intended replacement property.

(“Identification Period”) The period that begins on the date the relinquished property is transferred and ends at midnight on the 45th day thereafter.

At the direction of the qualified Intermediary, title passes directly to the ultimate owners without the qualified intermediary being in the actual chain of title.

Section 1.1031(k)-1(k) defines a disqualified person to include an agent of the taxpayer at the time of the transaction including a person that has acted as the taxpayer's employee, attorney, accountant, investment banker or broker, or real estate agent or broker within two years of the taxpayer's transfer of relinquished property. However, in determining whether a person is a disqualified person, services provided by such person for the taxpayer with respect to section 1031 exchanges of property and routine financial, title insurance, escrow, or trust services provided to the taxpayer by a financial institution, title insurance company, or escrow company are not taken into account.

A limited liability company (LLC) with only one member is disregarded entity. Typically, an LLC is considered a separate entity from its owners. However, a single-member LLC is not considered to be separate from its owner.

Non-profits and social organizations source money for purposes involving charitable projects.

Easement is the right to use the real property of another for a specific purpose. The easement is itself a real property interest, but legal title to the underlying land is retained by the original owner for all other purposes. Typical easements are for access to another property, for utility or sewer lines both under and above ground, use of spring water, entry to make repairs on a fence or slide area, drive cattle across and other uses. Easements can be created by a deed to be recorded just like any real property interest.

The earliest of: (a) the day on which the taxpayer receives the replacement property pursuant to the replacement property contract (but not earlier than the 45th day after the beginning date); (b) the day (but not earlier than the 45th day after the beginning date) on which there occurs a material and substantial contingency that (i) relates to the deferred exchange, (ii) is provided for in writing and (iii) is beyond the control of the taxpayer and any disqualified person (as defined in Treasury Regulations Section 1­­.1031(k)‑1(k)) other than the person obligated to transfer the replacement property to the taxpayer under the replacement property contract; (c) the last day of the designation period if no replacement property has been identified by the taxpayer by the end of the designation period; or (d) the last day of the Exchange Period.

Equitable conversion is a doctrine of the law of real property under which a purchaser of real property becomes the equitable owner of title to the property at the time he/she signs a contract binding him/her to purchase the land at a later date. The seller retains legal title of the property prior to the date of conveyance of the property by deed upon the purchaser’s full and final payment due.

Enables investors to invest in an early-stage in exchange for an equity stake in the company. Investory minimums are typically $1000 or greater.

An escrow agreement provides for the placement of money or other assets in the control of an independent third party in order to protect the parties involved in a transaction. The funds or assets are held by the escrow agent until it receives the appropriate instructions or until predetermined contractual obligations contained in the escrow agreement have been fulfilled.

A person or entity having a fiduciary responsibility to all parties of an escrow agreement that holds property in custody for third parties until the terms of a contract are fulfilled, a transaction is finalized or a disagreement is resolved.

Escrow agent. A person or entity having a fiduciary responsibility to all parties of an escrow agreement that holds property in custody for third parties until the terms of a contract are fulfilled, a transaction is finalized or a disagreement is resolved.

Also referred to as an "EAT", is typically a special purpose, limited-liability company that is used to own the legal title to property that is being parked as part of a reverse exchange. An exchange accommodation titleholder may not be a disqualified person.

The account established by the taxpayer with a qualified intermediary to hold Exchange Funds and other amounts delivered by the taxpayer to a qualified intermediary as set forth in Paragraph 3.1(a) of this Agreement.

Agreement between the Exchanger and the Qualified Intermediary, establishing the Exchanger’s intent to complete a Like-Kind Exchange and detailing each party’s roles and responsibilities. The Exchange Agreement must detail the exchange in accordance with the deferred exchange regulations.

Proceeds received by the taxpayer from the transfer of the relinquished property pursuant to the relinquished property contract.

Interim time between the disposition of the relinquished property and the earlier of the following: (i) acquisition of all replacement properties by the taxpayer; (ii) after the 45 day identification period if an identification has not been made or any identified properties have been previously received by the taxpayer or revoked as identified properties; (iii) the 180th day thereafter; (iv) after the taxpayer’s deadline for filing its federal income tax return for the year in which the relinquished property was disposed in (including extensions). Note—The exchange period includes all weekends and holidays.

(“Exchangor” or “Taxpayer”) Person intending to conduct a 1031 tax deferred exchange, who transfers a relinquished property and thereafter receives a replacement property.

An undivided interest in improved or unimproved land, lots, or parcels, evidenced by a certificate, deed, or other document conveying the interest. Examples include joint tenants, and tenants in common.

The price for which a property would sell on the open market, between a willing buyer and a willing seller, neither being required to act, and both having reasonable knowledge of the relevant facts.

Also known as a “Presidentially Declared Disaster”. Defined within the Internal Revenue Code as “any disaster subsequently determined by the President of the United States to warrant assistance by the Federal Government under the Robert T. Stafford Disaster Relief and Emergency Assistance Act. ”The Internal Revenue Service has the sole authority to grant Like-Kind Exchange deadline extensions related to Federally Declared Disasters.

The greatest possible estate in land, wherein the owner has the right to use it, exclusively possess it, commit waste upon it, dispose of it by deed or will, and take its fruits. A fee simple represents absolute ownership of land, and therefore the owner may do whatever he or she chooses with the land.

Section 1.1031(k)-1(g)(6) provides that an agreement with an escrow holder, trustee or qualified intermediary must expressly limit the taxpayer's rights to receive, pledge, borrow, or otherwise obtain the benefits of money or other property held in the qualified escrow or trust or by the qualified intermediary.

The amount received for a property, minus the property’s adjusted basis and transaction costs. Regardless of the adjusted basis of a property, there is no gain until the property is transferred. There are two types of gain: “realized gain” and “recognized gain.” Realized gain is the difference between the total consideration (cash and anything else of value) received for a piece of property and the adjusted basis. Realized gain is not taxable until it is recognized. Gain is usually, but not always, recognized in the year in which it is realized. If gain is not recognized in the year it is realized, it is said to be deferred. In an exchange under Section 1031, realized gain is recognized in part or in full to the extent that boot is received. See Boot. Where only like kind property is received, no gain is recognized at the time of the exchange.

A ground lease differs from other types of leases. Generally speaking, one may use a ground lease as a tenant to occupy a piece of land and make improvements to it. For example, one person may own the land and another, under a long-term lease of the land, may build a building on the land and own those improvements, Sometimes it may be the only way to gain access to extremely valuable real estate in an excellent location. The owner may be unwilling to sell, or the owner may have received the property by gift or deed (such as a church or university) and be prohibited from selling for some period of time. At the end of the lease term, the improvements become the property of the landowner.

A sum of money that remains unpaid until certain conditions are met; A sum of money kept as a reserve to cover dertain contingencies; Portion of a construction amount that is not released until a certain stage is reached (such as completion of the foundation.

As it pertains to Section 1031, a holding period is a threshold requirement of a valid exchange that the properties sold and purchased were held for a period of time as investment or for use in a business or trade. The regulations do not set forth a minimum holding time as a safe harbor, rather it is a facts and circumstances test. Other definitions of holding period exist in tax law and elsewhere.

Section 1031(a)(3) and Section 1.1031(k)-1(c) provides that a written unambiguous description of the intended replacement property or properties, signed by the taxpayer must be sent to the qualified intermediary or other person who is a party to the exchange and who is not a disqualified person.

Any Replacements received within the 45-day Identification period are deemed to have been identified. Replacements received after the 45th day must have been properly identified in writing during the 45 day Identification Period. This period runs from the relinquished property sale date until midnight on the 45th day thereafter.

This refers to a type of exchange done where some of the proceeds of the sale of the relinquished property will be used to cause improvements to be added to the improvements already on the replacement property so that the taxpayer can complete the trade where both the value of the land and of the enhanced improvements will count for the amount the taxpayer traded for. For example a taxpayer may put in new heating, ventilating, air conditioning, roof and windows on the property. These types of exchanges are structured pursuant to IRS Rev. Proc. 2000-37 and are sometimes known as “property parking exchanges” and require the exchange facilitator to take on an additional role as a Qualified Exchange Accommodation Titleholder.

This is a rule that pertains to the requirement generally to identify or designate replacement property within forty-five days from the sale of the relinquished property. The rule states that should the replacement property include some incidental property that in a standard commercial transaction is normally transferred with the larger property and the incidental property does not have a value of more than 15% of the larger property, such incidental property does not have to be specifically identified. For example if an apartment building is being designated as replacement property and the furniture, laundry machines and other miscellaneous property does not make up more than 15% of the value of the replacement property, it does not need to be mentioned in the designation. Be wary, the rule only pertains to the identification process; the property still needs to be like kind to the relinquished property.

A charge paid by a borrower to a lender for the opportunity to borrow funds via a loan or the funds earned by an account owner/beneficiary on the amount held on deposit.

A person acting to facilitate an exchange under section 1031 and the regulations. This person may not be the taxpayer or a disqualified person. Section 1.1031(k)-1(g)(4)(iii) requires that, for an intermediary to be a qualified intermediary, the intermediary must enter into a written "exchange" agreement with the taxpayer and, as required by the exchange agreement, acquire the relinquished property from the taxpayer, transfer the relinquished property, acquire the replacement property, and transfer the replacement property to the taxpayer.

Internal Revenue Code (IRC). The comprehensive set of tax laws created by the Internal Revenue Service (IRS). This code was enacted as Title 26 of the United States Code by Congress, and is sometimes also referred to as the Internal Revenue Title. The code is organized according to topic, and covers all relevant rules pertaining to income, gift, estate, sales, payroll and excise taxes.

A suit pleaded between two or more parties to determine a matter of claim or right to assets held by a third party such as an escrow agent.

One of the fractional ownership interests of real estate. Typically gives each of the joint tenants a right of survivorship in which they become the sole owner of the real estate if the other owner dies first.

These are depository bank accounts where the account opening documentation requires the qualified intermediary and an authorized representative of the taxpayer to jointly act in regard to money movement at the bank account level. This account structure is often used in connection with the administration of LKE Programs and is specifically authorized by Rev. Proc. 2000-39 5.02.

The licensee is the party that receives a license or escrowed content from the licensor.

The licensor is the party that grants the license or the escrow content to the licensee (recipent).

Refers to the "nature or character" of the property and not to its "grade or quality." That is, real property held for investment or the productive use in a trade or business may generally be exchanged on a tax-deferred basis for other real property. Personal property held for investment or the productive use in a trade or business may generally be exchanged on a tax-deferred basis for other personal property, provided the personal property is of "like kind" or "like class." Professional tax advice should be obtained when planning exchanges.

Internal Revenue Code Section 1031 states that "no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held for productive use in a trade or business or for investment."

Property disposed of and the property acquired for a section 1031 exchange must be “like kind” to each other, and must be held for productive use in a trade or business or for investment. There are two types of property: real and personal. Real property is like kind to all other types of real property. Personal property is like kind only to personal property if it is of similar use or quality.  Example of Like Kind Real Property Exchange: Real property may be exchanged with trade or business, or investment properties. For example, an apartment building can be exchanged for a hospital, several single-family rent houses, or a shopping center, without regard to the grade or class of property.

These types of exchanges are available to taxpayers who have an ongoing program of 100 or more properties. This allows for efficiencies that are not present in normal single asset exchanges such as providing blanket assignments of contract rights to the qualified intermediary and only needing a single Master Exchange Agreement rather than one for each periodic trade. The guidance for this type of exchange can be found in Rev. Proc. 2009-39 and is used frequently by leasing companies and users of heavy duty machinery and equipment.

The day-to-day administration of a loan which includes sending monthly payment statements and collecting monthly payments, maintaining records of payments and balances, collecting and paying taxes and insurance, managing escrow and impound funds, remitting funds to the lender, and following up on delinquencies with the borrower.

The current method of accelerated asset depreciation in the United States is known as the Modified Accelerated Cost Recovery System (MACRS). MACRS divides all assets into classes which dictate the number of years over which an asset's cost will be recovered.

In the context of reverse exchange administration a Master Lease between the Exchange Accommodation Titleholder as Lessor and the taxpayer as Lessee, is often used in order for taxpayer to be able to sublease the property to the actual property tenants. This removes the need for the Exchange Accommodation Titleholder from having any interaction with the property tenants. If also puts responsibility on the taxpayer to pay for utilities, taxes and insurance.

Mixed use is the use of a single property for both personal use and also as an investment or for use in a business or trace. An example would be farm land upon which is the farmer's home and the farming acreage.

A debt instrument that is secured by real estate collateral that the borrower is obligated to pay back over a period of time with a predetermined set of payments, which include both the loan and interest.

Any liability in the exchange assumed or taken subject-to.

An entity that is responsible for the day-to-day management of a mortgage loan account, including collecting and crediting monthly loan payments, and handling your escrow/impound funds.

Property excluded from exchange treatment under IRC §1031(a)(2), such as inventory or property held primarily for sale; beneficial interests in or an ownership in a trust; interests in a partnership; and securities or evidences of indebtedness.

This agreement is required when there are direct transfers of qualifying Relinquished Property and /or Replacement Property. Mere delivery is all that is required to all parties to the applicable agreement, including non-exchanging Buyers and Sellers of Relinquished Property or Replacement Property.

An offering memorandum (OM) is a legal document provided to prospective investors when selling securities in a business. It is also referred to as a private placement memorandum or offering circular.

Income received, such as wages, commissions, salaries and interest, that is taxed at the highest rates, or ordinary income rates.

A procedure under which title to either the Taxpayer’s relinquished or replacement property is acquired by the Exchange Accommodation Titleholder in order to facilitate a reverse or build-to-suit exchange, pursuant to Revenue Procedure 2000-37.

This refers to the fact situation where the taxpayer may be a partnership or limited liability company and one or more partners or members wish to do an exchange of the property while other partners or members wish to cash out. These types of transactions are complicated and benefit from the advice of the taxpayers’ tax professionals.

A transfer of personal property (or "chattel" as opposed to real-property) as part of a tax-deferred exchange transaction involving personal property held for trade, business, or investment. This type of exchange can be used to dispose of older property such as; collector cars, artwork, farm equipment, breeding stock, aircrafts, telecommunications equipment, heavy equipment, ect. - and replace it with newer like-kind equipment.

Principal, interest, tax and insurance; the components of a mortgage payment which may include property taxes and both property insurance and mortgage insurance.

An amount borrowed or the balance owed on a loan, excluding interest or the money that is used to pay down the balance owed on a loan.

(PITI) The components of a mortgage payment which may include property taxes and both property insurance and mortgage insurance.

A private placement memorandum (PPM) is a legal document provided to prospective investors when selling securities in a business. It is also referred to as an offering memorandum or offering circular.

A negotiable instrument in the form of a written, signed, unconditional commitment to pay a certain amount of money (principal and interest) either on demand or at a specified time.

Both the relinquished property and the replacement property must be held by a taxpayer for a “productive use in a trade or business or for investment”.

This is an IRS safe harbor which may be used in connection with holding exchange funds. Although there are various structures, usually a third party bank depository will hold the funds in escrow for the mutual benefit of the taxpayer and qualified intermediary.

This is a term that the IRS coined in the “reverse exchange” Rev. Proc. 2000-39 pertaining to the overarching agreement which must be put in place between the Exchange Accommodation Titleholder and the taxpayer. The Rev. Proc. contains certain provisions which are mandatory to be in the agreement in order for these parking arrangements to be in the safe harbor set forth in the Rev. Proc. This applies to reverse exchanges of relinquished or replacement property as well as build-to-suit and property improvement exchanges.

(“QI”) A person acting to facilitate an exchange under section 1031 and the regulations. This person may not be the taxpayer or a disqualified person. Section 1.1031(k)-1(g)(4)(iii) requires that, for an intermediary to be a qualified intermediary, the intermediary must enter into a written "exchange" agreement with the taxpayer and, as required by the exchange agreement, acquire the relinquished property from the taxpayer, transfer the relinquished property, acquire the replacement property, and transfer the replacement property to the taxpayer.

This is an IRS safe harbor which may be used in connection with holding exchange funds. Although there are various structures, usually a third party institution which has trust powers will hold the funds in trust for the mutual benefit of the taxpayer and qualified intermediary.

For real estate to qualify for 1031 exchange treatment, it must be “held for productive use in a trade or business, or for investment.”

A trust that invests primarily in real estate, and passes the income, losses, and other tax items to its investors. Investments in REITs are classified as securities, and as such do not qualify for Section 1031 exchange treatment.

The land, and everything that is permanently attached to the land, and all of the rights of ownership of that property. Real property is typically classified according to its general use as either residential, commercial, agricultural, industrial, or special purpose.

A real estate exchange (as opposed to chattel or personal property) as part of a tax-deferred exchange transaction involving real estate held for trade, business, or investment. Real Property 1031 Exchanges may involve transfers of land buildings and structures including but not limited to: Office Buildings, Industrial Warehouses, Retail Stores, Multi-family Apartment Buildings, Farms, Raw Undeveloped Land, Factories, Shopping Centers, Leasehold interest of 30 years including options to renew, and certain Tenant in Common Investments.

The difference between the total consideration (cash and anything else of value) received for a piece of property and the adjusted basis.

The portion of the realized gain that is subject to income taxation.

Section 1031 of the Tax Code, with certain limited exceptions, prohibits exchanges where the taxpayer intends to acquire replacement property from a related party. Related Party is defined in I.R.C. § 267(b) or 707(b)(1) and generally covers exchanges between family members as well as exchanges between other entities where there is a high commonality of ownership.

Those certain items of real and/or personal property described in the relinquished property contract and qualifying as “relinquished property” within the meaning of Treasury Regulations Section 1.1031(k)-1(a); The "Old Asset”, property or properties given up or conveyed by a taxpayer as part of a 1031 exchange.

The purchaser of the relinquished property.

The contract or other agreement providing for the relinquished property buyer’s purchase from the taxpayer of the relinquished property. The taxpayer’s rights under the relinquished property contract will be assigned to the qualified intermediary.

Those certain items of real and/or personal property qualifying as “replacement property” within the meaning of Treasury Regulations Section 1.1031(k)‑1(a) and either: (a) received by the taxpayer within the designation period in accordance with Treasury Regulations Section 1.1031(k)‑1(c)(1) or (b) identified in a written designation notice signed by the taxpayer and hand delivered, mailed, telecopied or otherwise sent to the qualified intermediary before the end of the designation period in accordance with Treasury Regulations Sections 1.1031(k)‑1(b) and (c). The definition of “replacement property” shall not include property the identification of which has been revoked by the taxpayer in accordance with Treasury Regulations Section 1.1031(k)‑1(c)(6); (“New Asset”) Property or properties properly received by a taxpayer as part of a 1031 exchange.

The contract or other agreement providing for the replacement property seller’s sale to the taxpayer.

The seller of the replacement property.

The unmaking or termination of a contract unilaterally or by all parties for legally sufficient reasons.

This type of exchange allows a taxpayer to acquire and improve or repair the replacement property before he or she sells the relinquished property. This type of exchange can be rather complex, but is a very useful tax planning tool for a sophisticated taxpayer.

A Reverse Exchange is typically conducted under the safe harbor established in Rev Proc 2000-37. These are "parking arrangements" where either: (i) a property is purchased and "parked" as a potential replacement property for the benefit of a specific taxpayer by an exchange accommodation title holder until such time as the taxpayer arranges for the transfer of the relinquished property to the ultimate transferee in a simultaneous or deferred exchange; or (ii) a taxpayer transfers the relinquished property to be "parked" by an exchange accommodation title holder in exchange for immediately receiving the replacement property, and the exchange accommodation title holder later transfers the relinquished property to the ultimate transferee

Requires lower dollar commitments than equity or debt crowdfunding; investors receive a reward - the product and/or service being offered by the business - in exchange for their investment.

A safe harbor generally refers to a fact situation where under traditional tax or legal principles the proposed transaction, or part of a transaction, would be prohibited. If an otherwise prohibited transaction can be structured pursuant to an IRS promulgated safe harbor, the IRS agrees not to challenge the structure as to form.

Certain provisions under the deferred exchange regulations giving the Exchanger protection from liability or penalty if followed precisely.

This refers to the IRS requirement that the same taxpayer who owns and sells the relinquished property be the taxpayer who acquires the replacement property. Some exceptions exist such as a person or entity who owns the relinquished property and a single member new limited liability company whose single member is the same entity that owns the relinquished property.

Additional depreciation expensing allowing taxpayers to deduct some or all of the cost of qualifying property. The amount of the deduction is subject to maximum annual limitations, taxable income limitations, and other limitations related to the value of the qualifying property.

Individual or entity that owns replacement property desired by the taxpayer.

A concurrent exchange wherein the taxpayer disposes of the relinquished property and immediately receives the replacement property. Often conducted as a direct swap between two parties exchanging similar properties.

Generally IRS rules require that the taxpayer who owns the relinquished property be the same taxpayer who owns the replacement property. However, for tax purposes, single member LLCs are disregarded and treated as owned by the single member. As a result a taxpayer who holds relinquished property in the name of a taxpayer can acquire the replacement property in a new LLC so long as the single member of the new LLC is either the individual who is member of the old LLC or the old LLC itself.

A one-time “bonus” depreciation allowance claimed against the starting Tax Basis of qualifying property. Eligible to be claimed in the year the eligible property is placed in service, the allowance is an additional deduction computed after any Section 179 expense (if applicable) and before any MACRS depreciation deductions are calculated.

This term refers to a person or entity that is inserted into a limited liability company operating company for the sole purpose of making it not possible for the LLC to declare bankruptcy. This is often a lender requirement in connection with large borrowing transactions to avoid the difficulties of the lender, as a secured party, getting the property out of the bankruptcy proceeding. The special member has no ownership interest in the property held in the LLC. This same role is sometimes structured as that of an Independent Director or an Independent Manager.

In the context of a reverse exchange and other property parking arrangements, it is commonplace for the Exchange Accommodation Titleholder to require that each parked property be held in a limited liability company whose only activity is holding title to the particular parcel of land. This way any liabilities that might affect the LLC are insulated in the LLC and do not spill over into other LLCs holding title to property held on behalf of other clients.

The landmark legal decision of T.J. Starker v. U.S., 602 F. 2d 1341 (9th Cir. 1979) was significant in the development of the 1031 tax exchange rules. In this case the Ninth Circuit Court held that non-simultaneous 1031 exchanges were permissible and set the precedent for the current 180 day non-simultaneous, delayed tax-deferred like-kind exchange transactions. Also referred to as a Starker Exchange.

The step transaction doctrine in tax law holds that a series of steps, which when taken individually are without substance, may be regarded as a whole, with the substance of the transaction taking precedence over its form.

Also depreciable basis. Generally a property’s acquisition cost, subject to immediate reductions by costs to place in service and other deductions / credits. This beginning basis serves as a starting point for ongoing reductions through allowances for depreciation. After accounting for depreciation allowances, the tax basis is often referred to as the property’s adjusted tax basis.

(“Exchangor" or "Exchanger") Individual or entity desiring an exchange.

Tenant in common holding is form of property ownership where more than a single entity holds title to the property. This is in contradistinction to an LLC or partnership where multiple parties constitute the LLC or partnership. Whereas tenants in common can go their own way in electing to exchange or not, this is not the case of individual LLC members or partners in a partnership. Rev. Proc. 2002-22 sets forth what attributers a co-ownership arrangement has that will constitute a tenant in common holding.

Any cash paid by way of commission or other expense in an exchange. Qualified transaction costs are deducted in computing the consideration received.