Project Description

To assist you in understanding the concepts of 1031, here is a glossary of the terms used in exchanging.


This is the starting point for determining the gain/loss in the transaction. Generally, basis is the cost of the relinquished property.


In an exchange of real property, boot is any consideration received by the exchangor other than real property. There are two kinds of boot:

1. Cash boot: Cash boot is cash or anything else of value received by the exchangor as a result of the exchange.

2. Mortgage boot:

Mortgage boot is any relief from debt the exchangor received as a result of the exchange. If the exchangor receives boot in any form, he or she will be taxed on the amount of boot received.


The party that acquires the relinquished property from the exchangor.

Capital gain.

Generally speaking, this is the difference between the sales price of the relinquished property less selling expenses and the adjusted basis of the property.

Constructive receipt.

The critical question in a deferred exchange is whether the exchangor has control over the proceeds during the exchange period. During the exchange period, the exchangor’s control or access to the exchange proceeds must be substantially limited and restricted to avoid having the exchange disallowed by the IRS.


The tax on an exchange transaction is not paid at the time of the transaction. Rather, it is paid at the time the replacement property is ultimately sold. Deferral is accomplished by carrying over the basis of the exchangor’s relinquished property to the replacement property, making any necessary adjustments for additional consideration paid.

Direct deeding.

Commonly used to pass property from the exchangor to the buyer and then from the seller to the exchangor. At the direction of the Qualified Intermediary, title passes directly to the ultimate owners without the Qualified Intermediary being in the chain of title.

Exchange period.

The period during which the exchangor must acquire replacement property in the exchange. The exchange period begins on the date the exchangor transfers the first relinquished property and ends on the earlier of the 180th day thereafter or the due date (including extensions) of the exchangor’s tax return for the year of the transfer of the relinquished property.


Same as taxpayer. IRC 1031. The section of the Internal Revenue Code that specifies the terms and conditions under which the exchangor may exchange certain types of property without recognition of capital gain taxes.

Identification period

The period during which the exchangor must identify replacement property in the exchange. The identification period starts on the day the exchangor transfers the first relinquished property and ends at midnight on the 45th day thereafter.

Like- Kind Poperty

This tern refers to the nature or character of the property, no its grade or quality. Generally real property is liked kind, to all other real property, as long as the property are held for investment or productive use in a trade or business. However, for personal property exchanges the relinquished property and replacement property must be in either the same general asset class or the same product class. For example, an airplane for an airplane.

Qualified Intermediary

The Qualified Intermediary is one of the safe harbors created by the IRC regulations, also called the “QI.” The QI acts on behalf of the exchangor as a facilitator of the 1031 exchange. The QI must be an independent third party and is designated by the exchangor to receive the proceeds from the sale of the exchangor’s relinquished property. In effect, the QI sells the relinquished property and uses the proceeds to purchase the replacement property.

Qualified property

Any like-kind property. Examples of properties that are not 1031 eligible include: stocks, bonds, personal residences, LLC interests or stock in trade or inventory.

Relinquished property

The property that the exchangor owns at the beginning of the exchange. This is the property the exchangor wishes to dispose of in the exchange.

Replacement property.

This is the property the exchangor intends to acquire in the exchange and the property with which the exchangor ends the exchange.

Reverse exchange.

A reverse exchange occurs when the exchangor closes on the replacement property prior to closing on the relinquished property.


The party that owns the replacement property which the exchangor wishes to acquire.


The party that is performing the exchange and will receive the deferral on the sale of property.