Page 16 - Old Republic Title Exchange

GLOSSARY
OF TERMS

Accommodator or Qualified Intermediary (QI) or Facilitator - A Direct Deeding - Direct deeding occurs when title to the
person or other entity who assists the exchanger to effect a tax- relinquished property is conveyed direct from the exchanger to
deferred exchange by holding the exchange proceeds, and acting the buyer without an intervening deed to the QI and when title to
as the principal in the sale of the relinquished property and the the replacement property is conveyed directly from the seller to
purchase of the replacement property. The accommodator/QI/ the exchanger without an intervening deed to the QI.
facilitator cannot be the taxpayer, a related party or an agent of Exchange Accommodation Titleholder (EAT) - The entity that
the taxpayer. holds title to either the relinquished property or the replacement
Adjusted Basis - In most cases, the adjusted basis is equal to property in connection with a reverse exchange or holds the
the purchase price, plus capital improvements, less depreciation. replacement property in an improvement exchange. In most
Transactions involving exchanges, gifts, probates and trust cases, the EAT is affiliated with the QI handling the exchange.
distributions may impact the property’s adjusted basis. The Exchange Period - The time allowed for the exchanger to acquire
exchanger’s tax or legal advisor is the proper party to determine the replacement property in a forward exchange or the time
adjusted basis. allowed to dispose of the relinquished property in a reverse
Basis - In general, basis is the original cost of the property. This is exchange. In a forward exchange, the exchange period starts
the starting point for determining gain or loss in any transaction. on the day the relinquished property is transferred and ends
on the earlier of the 180th day thereafter or the due date of the
Boot - Boot is any type of property received in an exchange
that is not like-kind, such as cash, mortgage notes or stock. The exchanger’s tax return. In a reverse exchange, the exchange
exchanger pays taxes on boot (i.e., recognizes) to the extent of period starts on the day the property is acquired by the EAT and
realized gain. In an exchange, funds not used to purchase the ends 180 days thereafter.
replacement property are taxable boot. Identification Period - The 45-day period within which the
Capital Gain - Capital gain is the difference between the selling exchanger must identify – in writing – properties they intend
price and the adjusted basis of the property. to purchase as replacement property in the exchange. The
exchanger is restricted as to the number of properties they are
Constructive Receipt - The exchanger is considered to be in allowed to list on their identification notice. (The identification
“constructive receipt” of money at the time the money is credited notice must be in a writing, signed by the exchanger and sent
to them, set aside for them or otherwise made available so to the QI or someone else involved in the exchange, who is
that they may draw upon it an any time or at any time notice of not disqualified, on or before the expiration of the 45 days.)
intention to draw upon it is given. The taxpayer may not pledge, Identification rules restricting the number of properties an
borrow or otherwise hypothecate the exchange proceeds. In exchanger may identify:
addition, actual or constructive receipt of money by an agent
of the taxpayer is deemed actual or constructive receipt by the • 3-property rule: the exchanger may identify a total of three
exchanger (Reg 1.1031(k)-1(f)(2). To avoid constructive receipt, properties of any value; or
the exchanger must be subject to the substantial restrictions • 200% rule: the exchanger may identify any number of
set forth in the safe harbors in the Treasury Regulations under § properties, as long as the total fair market value of all of the
1.1031(k)-1(g). properties identified does not exceed 200% of the value of
Deferral - Payment of capital gains tax is deferred until the the relinquished property; or
exchanger sells the replacement property (unless the exchanger • 95% exception rule: the exchanger may identify any number
engages in another exchange). of properties, as long as they actually acquire 95% of the
value of the properties identified.

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