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Glossary of Terms

ACCOMMODATOR or QUALIFIED INTERMEDIARY or FACILITATOR - A person or entity who assists the exchanger to effect a tax-deferred exchange by preparing the necessary agreements, holding the exchange proceeds and acting as the principal in the sale of the relinquished property and the purchase of the replacement property. The facilitator/intermediary/accommodator cannot be the taxpayer, a related party or an agent of the taxpayer.

ADJUSTED BASIS - Simply stated, the adjusted basis is equal to the purchase price, plus capital improvements, less depreciation. Transactions involving exchanges, gifts, probates and trust distributions may impact the property's adjusted basis. The Exchanger's tax and legal advisor is the party to look to determine adjusted basis.

BASIS - The starting point for determining gain or loss in any transaction. In general, basis is the cost of the property.

BOOT - Boot is any type of property received in an exchange that is not like kind, such as cash, mortgage notes, a boat, or stock. The Exchanger pays taxes on the boot to the extent of recognized capital gain. In an exchange, any funds not used to purchase the replacement property will be called boot.

CAPITAL GAIN - Generally speaking, this is the difference between the sales price of the relinquished property - less selling expenses - and the adjusted basis of the property.

CONSTRUCTIVE RECEIPT - If the Exchanger has control over the exchange proceeds or property during the exchange period he may be deemed in constructive receipt. If the Exchanger actually or constructively receives the exchange proceeds or property, the exchange may not qualify under IRC ยง1031.

DEFERRAL - The capital gains tax is not paid until such time (i.e. it is “deferred”) as the Exchanger sells the replacement property without engaging in another tax deferred exchange.

DIRECT DEEDING - At the direction of the accommodator, title is conveyed directly to the ultimate owners without the accommodator being in the chain of title, thus avoiding the imposition of additional transfer tax.

EXCHANGE ACCOMMODATION TITLEHOLDER (“EAT”) - the entity that holds title to either the Relinquished Property or the Replacement property in connection with a Reverse Exchange. In most cases, the EAT is affiliated with the Qualified Intermediary handling the reverse exchange.

EXCHANGE PERIOD - The time allowed for the Exchanger to acquire the Replacement Property in a delayed exchange, or the time allowed to dispose of the Relinquished property in a reverse exchange. In a delayed exchange, the exchange period starts on the day the Relinquished Property is transferred. In a reverse exchange, the exchange period starts on the day the property is acquired by the EAT. The exchange period ends on the earlier of the 180th day after the transfer if no extension is applied for then on the day the Exchanger's tax return is due - often April 15th if the Exchanger is not an entity on a different fiscal tax year.

IDENTIFICATION PERIOD - Within 45 days from the close of the relinquished property the replacement property must be identified in accordance with one of the three adopted rules. In a reverse exchange, the relinquished property must be identified within 45 days from the EAT's acquisition of the replacement property.

LIKE KIND PROPERTY - Refers to the nature or quality of the property you give up or receive in the exchange, such as real property for real property. Real property does not have to be similar in use such as raw land for raw land. Raw land may be exchanged for any other real property that will be used in a trade or business or held for investment. Real property located in the United States and real property located outside of the United States is not like kind.

QUALIFIED EXCHANGE ACCOMMODATION AGREEMENT (“QEAA”) - A written agreement whereby the EAT agrees to purchase and hold title to the replacement property or relinquished property until the Exchanger is able to sell the relinquished property.

REALIZED GAIN - Refers to gain that is not yet taxed. In a successful exchange the gain is realized but not recognized and therefore not taxed.

RECOGNIZED GAIN - Refers to the amount of gain that is subject to tax when property is disposed of at a gain or profit in a taxable transfer.

RELATED PARTY - Any person bearing a relation to the taxpayer as described in IRC Section 267(b) or Section 707(b)(1), including family members such as siblings, ancestors, and lineal descendants. An individual is considered to be related to an entity, e.g., a partnership, LLC or corporation, if they own more than 50% of that entity.

RELINQUISHED PROPERTY (Property Sold) - The property given up by the Exchanger in the 1031 exchange transaction. This portion of the exchange transaction is sometimes referred to as Phase One.

REPLACEMENT PROPERTY (Property Bought) - The property the Exchanger acquires in a 1031 exchange or Phase Two of the transaction.

TRANSFER TAX - A tax assessed by a city, county or state on the transfer of property that may be based on equity or value. The use of direct deeding in an exchange avoids additional transfer tax.

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