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.
