1031 Exchange Glossary

Definitions of common 1031 exchange terms and real estate investment terminology.

Core Concepts

1031 Exchange: A tax-deferred exchange of real property under IRC Section 1031. Defers capital gains and depreciation recapture indefinitely.

Boot: Any property or cash received that is not like-kind. Boot received is taxable up to the lesser of boot received or realized gain.

Like-Kind Property: Property of the same nature or character. Post-TCJA, only real property qualifies. All U.S. real property is like-kind to all other U.S. real property.

Qualified Intermediary (QI): A disinterested third party who holds exchange proceeds and transfers replacement property. Required for the safe harbor.

45-Day Identification Period: Deadline to identify replacement property in writing. Midnight of the 45th calendar day after closing. No extensions except federally declared disasters.

180-Day Acquisition Period: Deadline to close on replacement property. Earlier of 180 calendar days or tax return due date for the year of exchange.

Tax Terms

Depreciation Recapture: Ordinary income tax (up to 37%) on depreciation deductions. A §1031 exchange defers all recapture.

Cost Segregation: Engineering study reclassifying building components into shorter-lived categories (5-year, 7-year, 15-year) for accelerated depreciation.

Investment Structures

DST (Delaware Statutory Trust): Pass-through entity for passive real estate investors. DST interests are like-kind real property for §1031. Securities sold through FINRA brokers.

TIC (Tenants in Common): Co-ownership of real property. TIC interests qualify for §1031 under Rev. Proc. 2002-22 requirements.

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