1031 Exchange Glossary
1031 exchanges involve many technical terms that can confuse first time investors. This glossary explains common 1031 exchange terminology in plain English to help investors better understand the exchange process.
A
Adjusted Basis
The property’s original basis adjusted over time for depreciation, improvements, and other tax factors.
Accommodation Titleholder
An entity commonly used in some reverse or improvement exchanges to temporarily hold property.
B
Boot
Value received during the exchange that may become taxable, such as cash or debt reduction.
Build to Suit Exchange
A type of exchange involving property improvements or construction during the exchange process.
C
Capital Gains Tax
Tax commonly owed on profits from the sale of investment property.
Closing Costs
Transaction expenses associated with selling or purchasing property.
D
Delayed Exchange
The most common type of 1031 exchange where replacement property is acquired after the original property sale.
Delaware Statutory Trust (DST)
A legal ownership structure sometimes used as replacement property in 1031 exchanges.
Depreciation Recapture
Taxes that may apply to prior depreciation deductions when investment property is sold.
E
Exchange Agreement
The agreement between the investor and the Qualified Intermediary governing the exchange transaction.
Exchange Period
The 180 day period during which replacement property must generally be acquired.
I
Identification Period
The 45 day period during which replacement property must generally be identified in writing.
Improvement Exchange
A type of exchange involving property construction or improvements during the exchange process.
L
Like Kind Property
Investment or business real estate that may qualify for exchange treatment under Section 1031 rules.
M
Mortgage Boot
Taxable value that may occur when debt on replacement property is lower than debt on the relinquished property.
Mixed Use Property
Property involving both investment and personal use or multiple categories of use.
Q
Qualified Intermediary (QI)
A third party facilitator commonly used to hold exchange proceeds and coordinate the exchange transaction.
Qualified Use
Property held for investment or business purposes under exchange rules.
R
Relinquished Property
The original property being sold during the exchange.
Replacement Property
The new investment property acquired during the exchange.
Reverse Exchange
A type of exchange where replacement property is acquired before the original property is sold.
S
Same Taxpayer Rule
The general rule that the taxpayer selling the original property should remain the taxpayer acquiring the replacement property.
T
Tax Deferral
Delaying recognition of certain taxes through a qualifying exchange structure.
Three Property Rule
A common identification rule allowing investors to identify up to three replacement properties regardless of value.
Why a Glossary Matters
Many exchange mistakes happen because investors misunderstand important terminology involving deadlines, ownership rules, financing, or property qualification requirements.
Understanding the language of 1031 exchanges may help investors communicate more effectively with:
- Qualified Intermediaries
- CPAs
- Attorneys
- Lenders
- Commercial brokers