Assignment Agreement - A
document used to transfer contractual rights (but not necessarily
obligations) to a third party. Often used to assign the Purchase/Sales
Contract between the exchanger, the Qualified Intermediary and either the
buyer or seller.
Basis - Method of measuring
investment in an investment property for tax purposes. The following formula
provides an approximate estimate of the adjusted basis: [Purchase Price +
Improvements] - Depreciation Deducted = Adjusted Basis.
Boot - Fair market value of
non-qualified (not like-kind) property received in an exchange. Examples:
cash, notes [seller financing], furniture, supplies, reduction in debt
Capital Gain/Loss - The increase
(or decrease) in the amount received from a sale or exchange over the
adjusted basis of the property.
Constructive Receipt - A term
referring to the control of proceeds by a taxpayer even though funds may not
directly be in their possession.
Exchange Agreement - A document
used to establish the contractual relationship between the parties to an
exchange which restricts the Exchanger's access to the exchange funds and
outlines the responsibilities of the Qualified Intermediary.
Exchanger - The party completing
the exchange. The IRS uses the term "taxpayer."
"Like-kind" Property -
Any property used for the productive use in a trade or business or for
investment is deemed to be like-kind with any other property to be used for
the productive use in a trade or business or for investment. The way the
property is utilized, and not the type of property, determines if it is
like-kind. Like-kind refers to the nature or character of the property and
not its grade or quality. Examples of like-kind property can include: single
family residential, multi-family residential, retail, manufacturing,
condominiums, offices, industrial warehouses and bare land. As a general
rule, real property is like-kind as to all other real property except: (1)
An interest in a partnership (2) Primary residences and vacation and/or
second homes (3) Inventory (defined as property held for sale).
Qualified Intermediary - An
entity who is not an agent of the taxpayer or a is qualified person and
enters into a written agreement with the taxpayer (the "Exchange
Agreement"). The Exchange Agreement must require that the Qualified
Intermediary acquires the relinquished property from the taxpayer, transfer
the relinquished property, acquire the replacement property, and transfer
the replacement property to the taxpayer.
Relinquished Property - The
property "sold" by the exchanger. This is also called the
"exchange," "downleg," or the "phase I "
Replacement Property - The
property acquired by the exchanger. This is also called the
"acquisition," "upleg," or "phase II"
Exchanges - Popular term for the delayed exchange variation upheld in
Starker v. United States, 602 F.2d 1341 (9th Cir. 1979).
Section 1031 Tax Deferred
Exchange - A deferred exchange is defined as an exchange in which, pursuant
to an agreement, the taxpayer transfers property held for productive use in
a trade or business or for investment (the "relinquished
property") and subsequently receives property to be held for productive
use in a trade or business or for investment (the "replacement