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$650 covers you for one relinquished property and one replacement property.

An additional $175 will be charged for each replacement property purchased afterwards.

There's a $30 wire fee for outgoing wires.

That's it.

AND we pay interest on the funds while we
hold them.

Tax Deferred Exchange Terminology


As with any other specific area of real estate law, you need to know the lingo, Joe. The following are some of the oft-used exchange terms and phrases, with their "plain-English" interpretation.

Definitions Of Some Common Terms

TAX REFORM ACT OF 1984

In the Tax Reform Act of 1984, Congress addressed the IRS's continued displeasure with the Starker decision by amending Section 1031 to allow Delayed Exchanges; but only if all of the exchange property is identified and acquired within specific deadlines (see Exchange Period). And most important in the Conference Report accompanying the 1984 Act, Congress specifically reaffirmed that a "sale" followed by reinvestment in like-kind property does NOT qualify for tax deferral under Section 1031. So to qualify for tax deferral, it is still quite essential to carefully structure an exchange to avoid actual or constructive "receipt" of proceeds of sale and to prevent characterization of the transaction as a taxable sale and reinvestment.

1991 REVISIONS

Basically the IRS held a hearing to try and "clean up" the Tax Reform Act of 1984 and to provide uniform terminologies, which are included herein. One of the main results for this revision is that IRS finally had a change of attitude toward Delayed Exchanges by accepting them instead of fighting them.

Relinquished Property: (Also called "Downleg" or simply Sale Property). This is the property you now own and are planning to sell or exchange. This is also sometimes referred to as the "exchange" property or the "downleg" property.

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Replacement Property: (Also called "Upleg" or Purchase Property). Replacement Property is the property or properties intended to be purchased with the funds that are received from the sale of the Relinquished Property. There are limitations on how many replacement properties you may identify in the same deferred exchange, no matter how many relinquished properties you transfer. This is sometimes referred to as the "acquisition" property or the "upleg" property.

Important: The penalty for violating the permitted maximum is severe. You are treated as not having identified any property within the identification period and the entire exchange will fail.

Like-Kind Property : Like-kind refers to your use of the property and not to its grade or quality, "1031" property may be mixed as to type and still be like kind. As an example, you may exchange a condo for a duplex, or a commercial building for vacant land, etc. This term refers to the nature or character of the property, and not its grade or quality. Generally, real property is "like-kind" as to all other real property, as long as the Exchanger's intent is to hold the properties as an investment or for productive use in a trade or business. With regards to personal property, the definition of "like-kind" is much more restrictive.

Note: Property held outside the USA and its territories does not qualify for exchange with property held within the USA.

Boot: Fair Market Value on non-qualified (like-kind) property received in an exchange. (Examples: cash, notes, furniture, supplies, reduction in debt obligations.)

Constructive Receipt: A term referring to the control of proceeds by a taxpayer even though funds may not directly be in their possession.

Exchanger: The property owner(s) seeking to defer tax by utilizing a Section 1031 exchange (The Internal Revenue Code uses the term "Taxpayer")

Qualified Intermediary: The entity that facilitates the exchange for the Exchanger. Some companies use the term "facilitator," and or "accomodator" and the Treasury Regulations use the term "Qualified Intermediary."

Qualified Intermediary is the company who acts as the accommodator in the exchange.

A qualified intermediary is identifed as follows:

1) Not a related party to the Exchanger, (e.g. agent, attorney, broker, etc.);

2) Receives a fee;

3) Acquires the relinquished property from the Exchanger; and

4) Acquires the replacement property and transfers it to the Exchanger.


IDENTIFICATION PERIOD

The replacement property must be identified within 45 days of the close of escrow/closing the relinquished property. This 45 day rule is very strict and is not extended if the 45th day should happen to fall on a weekend or a legal holiday.


EXCHANGE PERIOD

The replacement property must be received by the taxpayer within the "Exchange Period", which ends on the earlier of 180 days after the date on which the taxpayer transferred the property relinquished, or the due date for the taxpayer's tax return for the taxable year in which the transfer of the relinquished property occurs (such as April 15th). Due to the Taxpayer's ability to extend the date of payment, the exchange period is usually 180 days.


DEFERRED EXCHANGE

This term is now used in place of "Non-Simultaneous Exchange" or "Starker Exchange". This is the type of an exchange where the Exchanger utilizes the exchange period described above.


STARKER

Name of the taxpayer in U.S. Court of Appeal's case which authorized Delayed Exchanges. The term "Starker Exchange" is no longer used to describe a Delayed Exchange.


SEQUENTIAL DEEDING

Property is actually deeded to the Intermediary and the Intermediary deeds to the ultimate owner.


DIRECT DEEDING

Vested owner deeds directly to the ultimate owner. Does not eliminate the duties of the Qualified Intermediary to acquire and transfer the relinquished property and acquire and transfer the Replacement Property.

EXCHANGE AGREEMENT

A deferred Exchange is defined as an exchange in which, PURSUANT TO AN AGREEMENT, the Exchanger transfers the relinquished property and subsequently receives the replacement property. THEREFORE, AN EXCHANGE AGREEMENT IS VITAL.

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