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Top 15 1031 Exchange Terms You Must Know

For folks who are only occasionally selling investment properties, it is useful to quickly review industry jargon before you begin the exchange process. Below are the 15 most common terms that we frequently are asked to explain to clients. Congratulations if you already know of all these since even real estate professionals can get tongue-tied when asked to define some of these terms.

  1. Adjusted Basis: Changes to original basis that occur over time due to making property improvements which increase basis and subtracting depreciation which reduces the basis.
  2. Basis: The original purchase price or cost of your property plus any out-of-pocket expenses, such as brokerage commissions, escrow costs, title insurance premiums, sales tax (if personal property) and other closing costs directly related to the acquisition.
  3. Boot: Receiving property that is not considered “like-kind” which includes cash or non-cash consideration, debt relief (mortgage boot), or promissory notes. If you receive boot in an exchange, it is likely that all or some portion of the boot will be taxed.
  4. Capital Gain in a 1031 Exchange: The difference between sales price after deducting expenses and adjusted basis.
  5. Delayed Exchange: An exchange where the closing of the relinquished property can occur up to 180 days after the closing of the replacement property.
  6. Depreciation Recapture: The amount of gain resulting from the sale of property that represents the recovery of past depreciation expense that has been previously deducted on the investor’s tax returns. This type of gain is taxed at 25% and must be paid even if no depreciation deductions were taken by the investor but can be deferred via a 1031 exchange. 
  7. Exchanger: This is the taxpayer, investor, or investor entity that is benefiting from completing the 1031 exchange and who holds title to the property being sold. 
  8. Exchange Period: The allowed maximum period of time between when the relinquished property is sold and when the acquisition of the replacement property can be completed. The Exchange Period ends either180 days after the relinquished property closes, or on the due date when the tax return is due for the year the relinquished property was sold, if that is sooner. The taxpayer also has the option to file a tax filing extension for their return in order to have the full 180 days to complete the exchange. 
  9. Identification Period: The 45-day timeframe after the date of the sale of a relinquished property in which the investor must identify replacement properties to their Qualified Intermediary. 
  10. Like-Kind Property: Valid 1031 replacement property types including apartments, residential rentals, raw land, commercial property, industrial buildings, retail stores, mineral and water rights and even billboards and parking lots among others. Replacement property types do not need be of same type as the property being acquired e.g., you can sell a single-family rental and exchange into a commercial building. 
  11. Qualified Intermediary: Also called an Accommodator Facilitator or QI, this is a party that facilitates the documentation for the exchange and holds the funds from the sale of the relinquished property until the client approves transfer of funds to acquire their replacement properties. 
  12. Partial Exchange: A partial 1031 exchange can still be completed in the event the that three basic exchange rules cannot be fully met. These rules are:
    1. Purchase replacement properties equal to or greater in value 
    2. Reinvest all your net proceeds
    3. Replace old debt with equal or greater new debt or cash

Inability to fully meet all three rules will result in tax liability for the portion of funds that do not meet these requirements. (See Boot)

  1. Relinquished Property: The property that is being sold via a 1031 exchange. Also referred to as a Downleg.
  2. Replacement Property: The property or properties being purchased by the taxpayer in a 1031 exchange. Also referred to as the Upleg.
  3. Reverse Exchange: A type of 1031 exchange in which a replacement property is purchased prior to the sale of a currently held property. Reverse exchanges differ from Delayed Exchanges, in which the replacement property must be purchased after the sale of the currently held property.

For more information on real estate tax deferral strategies and to obtain a list of current 1031-eligible replacement properties, please contact us at 408 392-8822 or info@FirstGuardianGroup.com. You can also schedule a personal consultation with Paul Getty here.

Please feel free to download our FREE ebook to learn more about real estate tax deferral strategies!


Help Save 1031 Exchanges
Write to your Member of Congress and Senators urging them to oppose restricting Section 1031 like-kind exchanges. As part of the American Families Plan, the Biden Administration has proposed eliminating the application of Section 1031 for gains greater than $500,000. Like-kind exchanges have been part of the U.S. tax code since 1921 and are one of the tax code’s most powerful economic tools. It is critical that we all vigorously and visibly oppose this proposal. Make your voice heard with a pre-filled letter, which you can customize to add personal anecdotes or powerful client stories to highlight the positive impact of Section 1031 like-kind exchanges. Take action today by clicking HERE.

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*The Tax Cuts and Jobs Act of 2017 allows real estate investors to fully write-off the cost of select new and used equipment, furniture, fixtures, and most land improvements in the year when the investment was made rather than requiring that the improvements be depreciated over time. This can be a powerful tool for lowering taxable income. Please consult your tax advisor to learn how you may benefit.

Paul Getty

Paul Getty is a licensed real estate broker in the state of California and Texas and has been directly involved in commercial transactions totaling over $3 billion on assets throughout the United States. His experience spans all major asset classes including retail, office, multifamily, and student, and senior housing. Paul’s transaction experience includes buy and sell side representation, sourcing and structuring of debt and equity, workouts, and asset and property management. He has worked closely with nationally prominent real estate brokerage and investment organizations including Marcus Millichap, CB Richard Ellis, JP Morgan, and Morgan Stanley among others on the firm’s numerous transactions. Paul also maintains a broad network of active buyers and sellers of commercial real estate including lenders, institutions, family office managers, and high net worth individuals. Prior to founding First Guardian Group/FGG1031, Paul was a founder and CEO of Venture Navigation, a boutique investment banking firm specializing in structuring equity investments made by institutions and high net worth individuals. He possesses over 35 years of comprehensive worldwide business management experience in environments ranging from early phase start-ups to multi-billion-dollar corporations. His track record includes participation in IPOs and successful M&A activity that has resulted in investor returns of over $700M. Paul holds an MBA in Finance from the University of Michigan, graduating with honors, and a Bachelor’s Degree in Chemistry from Wayne State University. Paul Getty holds Series 22, 62, and 63 securities licenses and is a registered financial representative with LightPath Capital Inc, member FINRA /SIPC. Paul is a noted speaker, author, and actively lectures on investments, sales, and management related topics. He is author of The 12 Magic Slides, Regulation A+: How the JOBS Act Creates Opportunities for Entrepreneurs and Investors, and Tax Deferral Strategies Utilizing the Delaware Statutory Trust (DST), available on Amazon and other retail outlets.

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