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

An additional $200 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.

1031 EXCHANGE GLOSSARY OF KEY TERMS

* Basis: The value of property for purposes of depreciation. For a purchased real property asset the basis is the initial amount paid for the property, plus capital improvements, less depreciation.

* Boot: Something given in addition to. Cash or personal property over and above equity. Generally used in exchange transactions to refer to something given, other than the major properties to be exchanged, in order to equalize value.

* Boot-Offset: When a taxpayer both pays and receives boot certain boot-offset rules apply.

* Capital Cost: Cost of improvements which tend to extend the useful life of the property or add to the facility.

* Capital Expenditures: Money spent on improvements such as land, buildings, machinery, and similar major expenditures which are not inventory.

* Capital Gains: Gains realized from the sale or exchange of capital assets. Generally, the difference between cost (i.e. basis) and selling price, less certain deductible expenses. Used mainly for income tax purposes.

* Capital Loss: Loss suffered through the sale or exchange of a capital asset.

* Cash Boot: Cash and non-qualifying property (i.e. not like kind) received in an exchange.

* Constructive Receipt: A taxpayer is said to be in constructive receipt of money or property at the time the money or property is credited to the taxpayer’s account, set apart for the taxpayer, or otherwise made available so that the taxpayer may draw upon it.

* Continuity of investment rationale: One of the rationales believed to be behind the original enactment of IRC §1031 which provides that if the taxpayer’s money is still tied up in the same kind of property as that which is was originally invested, he is not allowed to compute and deduct his theoretical loss, nor is he charged with the tax on his theoretical profit.

* Dealer: A person who holds property primarily for sale to customers in the ordinary course of his trade or business. The importance of the term is for tax purposes. If IRS determines that a taxpayer is a dealer, the taxpayer will not be allowed the capital gains benefits of an investor, but will be taxed at ordinary rates.

* Debt Relief: Another term for mortgage boot received, which means that the taxpayer’s liabilities have been assumed or taken subject to, in the exchange.

* Depreciation: Decrease in value to real property improvements brought about by age, physical deterioration, functional or economic obsolescence. Also a loss in value as an accounting procedure to use as a deduction for income tax purposes.

* Disqualified Person: Treasury Regulation §1.1031(k)-1(k) has chosen to restrict the use of related parties as qualified escrow agents, trustees and intermediaries. Generally a person who has acted as the taxpayer’s employee, attorney, accountant, investment banker or broker, or real estate agent or broker within a two year period, direct linear relations (i.e. taxpayer’s parent, child, sibling, etc.), and certain other parties are not allowed to act as the intermediary. Furthermore, none of these persons can own as much as 10% of any Qualified Intermediary used by their clients without also becoming disqualified. For example, if even so much as 10% ownership of a Qualified Intermediary is held by a CPA or Real Estate Agent, then that QI is considered to be a “Disqualified Person” for every client who has used that CPA or Real Estate Agent in the last 2 years.

* Disregarded Entity: An entity that the IRS has determined need not file its own tax return. The two most common and most applicable to 1031’s are the “Living Trust” and the “Single Member LLC”. Any income or expense from the assets owned by the “Living Trust” must be reported on the tax return of the entity controlling the trust. Likewise with LLC’s and the tax return of the LLC’s sole member.

* Equity: The fair market value (FMV) in excess of mortgages and other liens.

* Exchange: The act of giving one thing as equivalent for another. To trade. The process of conveying and acquiring “Like kind” investment properties in a manner to avoid or defer payment of taxes on the capital gain.

* Exchange Period: The period of time within which the taxpayer must receive the replacement property. It begins on the date the taxpayer transfers the relinquished property and ends at midnight on the earlier of the 180th day thereafter or the due date (including extensions) for the taxpayer’s tax return for the tax year in which the transfer of the relinquished property occurs.

* Holding Period: In an exchange, it begins on the date of acquisition of the original property.

* Identification period: The period set by IRC §1031 during which the taxpayer must identify replacement property. The identification period begins on the date the taxpayer transfers the relinquished property and ends at midnight on the 45th day thereafter.

* Incidental Property: Property which will not be treated as property separate from a larger item of property if in standard commercial transactions the property is typically transferred together with the larger item of property, and the aggregate fair market value of the incidental property does not exceed 15 percent of the aggregate fair market value of the larger item of property. (Treasury Regulation §1.1031(k)-1( c)(5), i.e. Laundry room facilities in an apartment complex.)

* Indicated Gain: The potential gain that would be recognized were the property sold for cash.

* Installment Sale: A tax term used to describe a sale which is usually accomplished by use of a land contract. If the seller receives less than 30% of the sale price in the year of the sale (not including interest), then the tax on the gain from the sale may be paid over the installment period, provided that no more than 30% of the sale price is received in any given year.

* Leg: One part or facet of a multiple property exchange.

* Like Kind Property: Like kind does not refer to the grade, type or quality of property, but only to the way the taxpayer uses the property. So, all real property in the U.S. is like kind to all other real property in the U.S. so long as each is either held for productive use in trade or business or held for investment by the taxpayer doing the exchange.

* Mortgage Boot: Liabilities assumed or taken subject to in an exchange.

* Net Loan Relief: Net mortgage boot received after applying boot-offset rules. The amount of the taxpayer’s liabilities which have been assumed or taken subject to by another, less the amount of liabilities which the taxpayer has assumed or taken subject to.

* New Basis: Basis of the new property in the hands of the new owner after acquisition of the property through purchase or exchange.

* Ninety Five Percent Rule: One of the rules for identifying alternative and multiple replacement properties specified by Treasury Regulation §1.1031(k)-1(c)(4)(ii)(B) which provides that the taxpayer may identify any number of replacement properties, no matter their aggregate fair market value, so long as the taxpayer receives no less than 95% of the aggregate fair market value of all identified properties, before the end of the exchange period.

* Old Basis: Adjusted cost basis of the property being exchanged.

* Ordinary Income: Taxable income other than Capital Gains Income, subject to the full graduated tax rates.

* Parking: Term used to refer to the holding of a replacement property by an unrelated third party in the case of a reverse exchange.

* Qualified Intermediary: A Qualified Intermediary, or QI, is an independent party who facilitates tax-deferred exchanges pursuant to Section 1031 of the Internal Revenue Code. The QI cannot be the taxpayer or a disqualified person. Acting under a written agreement with the taxpayer, the QI acquires the relinquished property and transfers it to the buyer. The QI will hold the sales proceeds to prevent the taxpayer from having actual or constructive receipt of the funds. Finally, the QI acquires the replacement property and transfers it to the taxpayer to complete the exchange before the end of the exchange period.

* Realized Gain: The excess of the amount realized over the adjusted basis of the property transferred.

* Recognized Gain: In a qualifying 1031 exchange, the taxpayer’s realized gain is recognized only to the extent of the sum of money and the fair market value of other “Non-Like kind” properties received by the taxpayer in the exchange.

* Relinquished property: The property that the seller disposes of in the exchange

* Replacement property: The like-kind property the seller acquires in the exchange elated third

* Straight Line Depreciation: A method of replacing the capital investment of income property, but likewise reducing the value of the property by a set amount annually from the income, over the economic life of the property.

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