The sale or disposition of real estate or personal property (relinquished property) and the acquisition of like-kind real estate or personal property (replacement property) structured as a tax-deferred, like-kind exchange transaction pursuant to Section 1031 of the Internal Revenue Code and Section 1.1031 of the Treasury Regulations in order to defer Federal, and in most cases state, capital gain and depreciation recapture taxes.

Typically refers to items not included in the Building’s construction work letter. The work letter indicates what the ownership of the building will include in a standard office buildout for their building.

A depreciation method that allows a property owner to deduct a greater portion of the cost of depreciable property in the first years after the property is placed in service, rather than spreading the cost evenly over the life of the asset, as with the straight-line depreciation method.

Direct access to your exchange funds or other property. Receiving exchange funds during the exchange period will disqualify your exchange.

The basis of the property adjusted for any capital improvements or depreciation. To calculate the adjusted basis, take the basis (the cost of the property) and add the cost of any capital improvements made to the property during the taxpayer's ownership, and subtract any depreciation taken on the property during the same time period. Once the adjusted basis is known, gain or loss can be computed on a transaction. The amount you use to determine your capital gain or loss from a sale or disposition of property. To determine the adjusted cost basis for your property, you must start with the original purchase cost. You then add any out-of-pocket expenses such as brokerage commissions, escrow costs, title insurance premiums, sales tax (if personal property) and other closing costs directly related to the acquisition, your cost of capital improvements and principal payments of special assessments (sewer and streets) to the property, and then subtract depreciation you have taken or were allowed to take, any casualty losses taken and/or any demolition losses taken.

A table that shows the periodic payment, interest and principal requirements, and unpaid loan balance for each period of the life of a loan.

In leases for retail stores, amounts to be paid, based on gross sales, over the Base Rent. See Percentage Lease.

Example: Johnson leases retail space in a shopping center. The lease calls for a base rent of $2,500 per month plus 5% of gross sales over $10,000. The first month, Johnson has sales of $20,000. In addition to the $2,500 base rent, Johnson pays an overage of $500 [.05 • ($20,000 - $10,000)].

A balanced exchange ensures that the taxpayer defers 100% of his or her taxes on capital gain and depreciation recapture. To achieve a balanced exchange 1) acquire a replacement property that is equal to or greater value than the relinquished property; 2) reinvest all of the net equity from the relinquished property in the replacement property; and 3) assume debt on the replacement property that is equal to or greater than the debt on the replacement property or contribute cash to make up the deficiency (See Partial Tax Deferment; Boot and Mortgage Boot/Relief).

In an exchange of real property, any consideration received other than real property is boot. ”The amount of gain recognized is always limited to the gain realized or boot, whichever is the smaller amount. Therefore, for a transaction to result in no recognized gain, the taxpayer must receive property with an equal or greater market value and debt than the property relinquished, and receive no boot. In exchanges, there are two types of boot: cash boot and mortgage boot. Cash boot is cash or anything else of value received. Mortgage boot is any liabilities assumed or taken subject to in the exchange.

The difference between the sales price of the Relinquished Property less selling expenses and the adjusted basis of the property.

For land or buildings, improvements (also known as capital improvements) are the expenses of permanently upgrading your property rather than maintaining or repairing it. Instead of taking a deduction for the cost of improvements in the year paid, you add the cost of the improvements to the basis of the property. If the property you improved is a building that is being depreciated, you must depreciate the improvements over the same useful life as the building.

A tax-deferred, like-kind exchange transaction whereby the disposition of the relinquished property and the acquisition of the replacement property close or transfer at the same time. A Concurrent Exchange is also referred to as a Simultaneous Exchange.

Language to be included in the Purchase and Sale Contracts for both relinquished and replacement property that indicates and discloses that the transaction is part of an intended tax-deferred, like-kind exchange transaction and requires that all parties cooperate in completing said exchange.

The tax on an exchange transaction is not paid at the time of the transaction. Rather, it is paid at the time the replacement property is ultimately sold. Deferral is accomplished by substituting, or carrying over the basis of the taxpayer's relinquished property to the replacement property making any necessary adjustments for additional consideration paid.

A delayed exchange is when the Replacement Property is received after the transfer of the Relinquished Property. All potential Replacement Properties must be identified within 45 days from the transfer of the Relinquished Property and the Exchangor must receive all Replacement Properties within 180 days or the due date of the Exchangor's tax return, whichever occurs first. Also called non-simultaneous, deferred, and Starker.

Periodic wearing away of a property over the property's economic life. The IRS requires investors and business owners to take a tax deduction on the amount of a property's depreciation. The practice of amortizing or spreading the cost of depreciable property over a specified period of time is usually its estimated depreciable life. Non-depreciable property includes vacant land. For assets that have an expected useful life of more than one year, you spread the cost of the asset over its estimated useful life rather than deducting the entire cost in the year you place the asset in service. The tax code (law) specifies the depreciation period for specific types of assets.

The value of a person's ownership in real property or securities; the market value of a property or business, less any claims or liens on it.

The sale or disposition of real estate or personal property (relinquished property) and the acquisition of like-kind real estate or personal property (replacement property) structured as a tax-deferred, like-kind exchange transaction pursuant to Section 1031 of the Internal Revenue Code and Section 1.1031 of the Treasury Regulations in order to defer Federal, and in most cases state, capital gain and depreciation recapture taxes.

A written agreement between the Qualified Intermediary and Exchangor setting forth the Exchangor's intent to exchange relinquished property for replacement property, as well as the terms, conditions and responsibilities of each party pursuant to the tax-deferred, like-kind exchange transaction.

The Taxpayer who is completing the tax-deferred, like-kind exchange transaction. An Exchangor may be an individual, partnership, LLC, corporation, institution or business.

The price at which property would change hands between a buyer and a seller, neither having to buy or sell, and both having reasonable knowledge of all necessary facts.

The amount obtained for a property minus the property's adjusted basis, and transaction costs. No matter what the adjusted basis of a property is, there is no gain until the property is transferred. There are two types of gain: realized gain and recognized gain.” Realized gain is the difference between the total consideration (cash and anything else of value) received for a piece of property and the adjusted basis. Realized gain is not taxable until it is recognized. Gain is usually, but not always, recognized in the year which it is realized. If gain is not recognized in the year it is realized, it is said to be deferred. In an exchange under Section 1031, realized gain is recognized in part or in full to the extent that boot is received. Where only like-kind property is received, no gain is recognized at the time of the exchange.

A tax-deferred, like-kind exchange whereby the Qualified Intermediary and/or Exchange Accommodation Titleholder acquires title and holds title to the replacement property on behalf of Exchangor, during which time new or additional structures or improvements are constructed or installed on or within the replacement property. Also known as a Build-to-Suit Exchange.

Section 1031 of the Internal Revenue Code allows an Exchangor to defer his or her capital gain tax and depreciation recapture tax when he or she exchanges relinquished property for like-kind or like-class replacement property.

Refers to the nature of the property the Exchangor gives up or receives in the exchange, such as real property for real property. It does not have to be similar in use such as raw land for raw land. The land could be exchanged for any other real property that will be used in a trade or business or held for investment.

A form of partnership in which there is one or more general partners, jointly and severally responsible as ordinary partners with liability, and one or more special partners, who are not liable for the debts of the partnership beyond the amount of cash they contribute/invest as capital.

When you assume debt on your replacement property that is less than the debt on your relinquished property, you receive mortgage boot or mortgage relief. Generally speaking, mortgage boot received triggers the recognition of gain and is taxable, unless offset by cash boot added or given up in the exchange.

Tax levied by Federal and State governments on a taxpayer's adjusted gross income. Investments that are held for less than one year are taxed at ordinary income tax rates.

When the cost value of an investment is maintained or increased.

An Exchangor must intend to use the property in their trade or business, to hold the property for investment or to hold the property for income production in order to satisfy the qualified use test.

A trust that invests primarily in real estate and mortgages and passes income, losses, and other tax items to its investors. REITS are typically classified as a security and are therefore not exchangeable.

Refers to a gain that is not necessarily taxed. In a successful exchange the gain is realized but not recognized and therefore not taxed.

Any person bearing a relationship to the Exchangor as described in Section 267(b) of the Internal Revenue Code. Related parties include family members (spouses, children, siblings, parents or grandparents but not aunts, uncles, cousins or ex-spouses) and a corporation in which you have more than a 50% ownership; or a partnership or two partnerships in which you directly or indirectly own more a 50% share of the capital or profits.

The property that the taxpayer ends the exchange with. This property, usually owned by the seller, is the property that the taxpayer acquires in the exchange. Also referred to as the purchase, target, upleg or‘ Phase II’ property.

The Treasury Regulations provide certain Safe Harbors that assist Qualified Intermediaries and Exchangors in structuring tax-deferred, like-kind exchange transactions so they can be assured that no constructive receipt issues will be encountered during the exchange cycle.

A tax-deferred, like-kind exchange transaction whereby the disposition of the relinquished property and the acquisition of the replacement property close or transfer at the same time. A Simultaneous Exchange is also referred to as a Concurrent Exchange.

A depreciation method that spreads the cost or other basis of property evenly over its estimated useful life.

The sale or disposition of real estate or personal property (relinquished property) and the acquisition of like-kind real estate or personal property (replacement property) structured as a tax-deferred, like-kind exchange transaction pursuant to Section 1031 of the Internal Revenue Code and Section 1.1031 of the Treasury Regulations in order to defer Federal, and in most cases state, capital gain and depreciation recapture taxes.

(also known as Co-Ownership of Real Estate (CORE)) a way of sharing ownership of property among two or more persons in which each tenant holds an undivided interest in the entire property, either equally or in designated interests of differing sizes. TIC/CORE investors are on deed and considered separate owners of the real estate, sharing pro rata in the income, tax benefits, and appreciation of the property, with the properties employing professional asset and property management.

The entity that owns/holds title to property. In an IRS Section 1031 Exchange, the titleholder of the relinquished property must generally be the same as the titleholder of the replacement property. If a taxpayer dies prior to the acquisition of the replacement property, his or her estate may complete the exchange. When the acquisition and disposition entities bear the same taxpayer identification numbers, such as disregarded entities (single-member LLCs and Revocable Living Trusts), the exchange usually qualifies.

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.