Glossary

1
1031 Exchange

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."

1031 Exchange Forms

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.

2
200% Rule

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.

3
3 Property Rule

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.

A
Assignment Agreement

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.

Assignment of Contract Rights

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.

B
Basis

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

Beginning Date

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

Bonus Depreciation

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.

Boot

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.

Build-to-Suit Exchange

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.

Buyer

The purchaser of the taxpayer's relinquished property.

C
Capital Asset

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.

Capital Gain

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

Capital Gains Tax

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

Chattel

Personal property (in contrast to real property)—including tangible movable property (telecommunications equipment, aircraft, trucks, drilling rigs, artwork or farm animals, heavy equipment, etc.).

Constructive Receipt

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.

Contract Servicing

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.

Cooperation Clause

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.

Cost Basis

Taxpayer's cost of acquiring the property.

D
Debt Crowdfunding

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

Deferred Exchange

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.

Depreciable Basis

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.

Depreciation Deductions

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.

Depreciation Recapture

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.

Designation Notice

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.

Designation Period

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

Direct Deeding

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.

Disqualified Person

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.

Donation Crowdfunding

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

E
Easement

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.

End Date

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

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.

Equity Crowdfunding

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

Escrow

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.

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.

Escrowee

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.

Exchange Accommodation Titleholder

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.

Exchange Account

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.

Exchange 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.

Exchange Funds

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

Exchange Period

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.

Exchanger

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

F
Federally Declared Disaster

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.

Fee Simple

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.

Franchise Exchanges

This refers to exchanges involving franchises where the furniture, fixtures, equipment and franchise rights associated with franchise locations being sold are exchanged for like-kind assets located at different franchise locations being acquired.

G
G(6) Limitation

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.

General Asset Classes

When making a determination of like-kind in connection with depreciable tangible personal property, if a particular relinquished asset sold is replaced with a replacement asset acquired and both fall within one of the thirteen General Asset Classes, then the properties are deemed to be like-kind.  For example, office furniture sold that was replaced with office equipment purchased would be like-kind due to the first General Asset Class which provides “ (I) Office furniture, fixtures, and equipment (asset class 00.11)”  are all in the same class.

Ground Lease

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.

H
Holdback

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.

Holding Period

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.

I
Identification

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.

Identification Period

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.

Improvement Exchange

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.

Incidental Property Rule

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.

Interest

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.

Intermediary

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

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.

Interpleader

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.

J
Jointly Controlled Accounts

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.

L
Licensee

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

Licensor

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

Like-Kind

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.

Like-Kind Exchange

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."

LKE Programs

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.

Loan Servicing

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.

M
MACRS

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.

Mass Asset Exchanges

These types of exchange are also known as LKE Program exchanges.  They are typically utilized when a taxpayer has high volume sales and purchases.  The paperwork associated with high volume exchanges can be minimized by structuring mass asset exchanges under the LKE Program Revenue Procedure, 2003-37.

Master Exchange Agreement

In connection with LKE Program or Mass Asset Exchanges, under IRS Rev. Proc. 200-37, a taxpayer may enter into a single exchange agreement with the qualified intermediary which will have an ongoing effect rather than the necessity of entering into a new exchange agreement in connection with every sale of relinquished assets.

Master Lease

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

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.

Mortgage

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.

Mortgage Servicer

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.

N
Non-Qualifying Property

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.

North American Industry Classification System

("NAICS" )The standard used by Federal statistical agencies in classifying business establishments for the purpose of collecting, analyzing, and publishing statistical data related to the U.S. business economy. NAICS was developed under the auspices of the Office of Management and Budget, and adopted in 1997 to replace the Standard Industrial Classification (SIC) system. It was developed jointly by the U.S. Economic Classification Policy Committee (ECPC), Statistics Canada, and Mexico's Instituto Nacional de Estadistica y Geografia , to allow for a high level of comparability in business statistics among the North American countries. The NAICS Manual uses a 6-digit product classification system to describe depreciable tangible personal property. For LKE purposes, property within a product class are considered to be like-kind. Copies of the NAICS Manual may be obtained from the National Technical Information Service, an agency of the U.S. Department of Commerce, and may be accessed on the internet. View complete NAICS Codes online: http://www.census.gov/epcd/www/naics.html

Notification of Assignment

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.

O
Offering Memorandum

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.

Oil Country Tubular Goods

("OCTG") Pipe and tube products used in the petroleum industry, such as drill pipe, pipe casings and oil pipes.  

Ordinary Income

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

P
Partnership Split-Offs

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.

Personal Property Exchange

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.

PITI

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

Principal

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.

Principal, Interest, Tax, and Insurance

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

Private Placement Memorandum

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.

Product Classes

When attempting to determine if similar types of personal property are like kind to each other and the assets do not fall into one of the General Asset Classes, reference to the government published North American Industry Classification System may be used to determine if the assets share a common Product Class number.  If so, the assets are considered like kind for 1031 exchange purposes.

Promissory Note

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.

Q
Qualified 1031 Property

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”.

Qualified Escrow Agreement

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.

Qualified Exchange Accommodation Agreement

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.

Qualified Intermediary

(“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.

Qualified Trust Agreement

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.

R
Real Property Exchange

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.

Related Parties

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.

Relinquished Property

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.

Relinquished Property Buyer

The purchaser of the relinquished property.

Relinquished Property Contract

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.

Replacement Property

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.

Replacement Property Contract

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

Replacement Property Seller

The seller of the replacement property.

Rescission

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

Reverse Exchange

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

Reward Crowdfunding

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.

S
Safe Harbor

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.

Safe Harbors

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

Same Taxpayer Requirement

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.

Section 179 Expense

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.

Seller

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

Simultaneous Exchange

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.

Single Member LLC Property Holding

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.

Special Depreciation

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.

Special Member

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.

Special Purpose Entity

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.

Starker Trust

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.

Step Transaction

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.

T
Tax Basis

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.

Taxpayer

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

Tenant in Common Property Holding

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.

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