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Terms
Accommodator/Intermediary
The company or individual who acts as a middle man in relinquishing the old property and acquiring the new properties, holds the funds, and ties the two transactions together.
Adjusted Cost Basis
The cost of the property plus capital improvements, less depreciation and capital losses.
Boot
Any un-like property received in an exchange, such as cash or mortgage relief in excess of the new mortgage.
Capital Gain
The difference in value between the adjusted cost basis and the net selling price, not the amount of cash received.
Capital Gains Taxes
Taxes due on the gain resulting from the sale of any capital asset. Calculated at the taxpayers ordinary tax rate, up to a maximum of 28%.
Delayed Exchange
When the old property is sold before the new property is acquired. Simultaneous Exchange
When both relinquished and acquired properties close the same day.
Equal or Greater Value
The replacement property must be of equal or greater net fair market value for the exchange to be fully tax-deferred.
Exchange Period
The exchanger has 180 calendar days in which to complete the entire exchange.
Exchanger
The taxpayer who owns property, which has appreciated in value, that he wishes to exchange for similar like-kind property and defer any capital gains taxes.
Identification
The exchanger must submit within 45 days of the closing of the relinquished property up to three potential replacement properties. Identification must be specific addresses or legal descriptions with any improvements detailed as clearly as possible.
Improvement Exchange
When the replacement property includes buildings to be built, or other improvement to be completed as part of the exchange. Usually done to balance the values of the acquired property with the relinquished property.
IRC 1031
The Section of the Internal Revenue Code which specifies the terms and conditions under which taxpayers may exchange certain types of property without recognition of capital gains taxes.
Like-Kind Property
Almost any real property (land and/or land with buildings), which is non-owner occupied.
Mortgage Acquired
Mortgage assumed or taken to acquire the replacement property.
Mortgage Relief
Mortgage given up or paid off on the property relinquished.
Net Fair Market Value
The selling price of the property less all closing costs.
Relinquished
The property to be acquired in the exchange. Any number of properties may be exchanged for any number of properties.
Reverse Exchanges
When the exchanger acquires replacement property prior to closing on the relinquished property. This has never been approved by the IRS or adjusted in court.
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