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TERMINOLOGY

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					                                    TERMINOLOGY
Exchangor:          Taxpayer who intends to dispose of one property and acquire another
                     and wishes to deferred capital gains tax.
Relinquished        Property being disposed of by Exchangor that was held for use in trade
Property:            or business or investment. Cannot be personal residence or property
                     held for re-sale.
Replacement         Property being acquired by Exchangor that he intends to hold for use in
Property:            trade or business or for investment.
Qualified           Safe Harbor allowed by the IRS to facilitate the exchange. A Qualified
Intermediary:        Intermediary is not the Exchangor or a disqualified person (relative,
                     employee or agent) and enters into a written agreement with the
                     Exchangor which establishes the intent to exchange and outlines the
                     contractual relationship between the parties.
Exchange            A written agreement between the Exchangor and Qualified
Agreement:           Intermediary which restricts the Exchangor’s access to the Exchange
                     funds and requires the Intermediary to dispose of the relinquished
                     property and acquire the replacement property, transferring that to the
                     Exchangor.
Identification      This is the time period in which the Exchangor must identify property
Period:              which he is interested in acquiring. It commences on the day of the
                     closing of the relinquished property and ends on the 45th day afterward
                     regardless of whether that is a weekend or holiday.
Exchange Period:    This is the total time period in which the Exchangor has to complete the
                     exchange (close on the replacement property). It also commences on
                     the closing of the relinquished property and ends 180 days thereafter or
                     on the due date of the Exchangor’s tax return (with respect to
                     extensions) whichever is sooner.
Basis:              The purchase price of the relinquished property, less depreciation, plus
                     improvements.
Boot:               Cash, personal property and debt relief (all is generally taxable).


                                EXCHANGING ISSUES
Like Kind           Any type of real property is like kind to any other except for personal
Property:            residences. A ranch can be exchanged for a duplex, an office building
                     can be exchanged for timbered ground or a rental house can be
                     exchanged for a farm.
Constructive        For purposes of an exchange, the Exchangor or a disqualified person is
Receipt:             not allowed to receive the proceeds at closing on the relinquished
                     property. The IRS has ruled that a disqualified person is a relative or
                     employee of, or an accountant, attorney, investment advisor or real
                     estate agent for the Exchangor. In order to circumvent the agency
                     issue, the IRS has established the safe harbor of a Qualified
                     Intermediary.
Delayed Exchange:   It is not necessary for an Exchangor to find someone who has the
                     property that he wants and that person wants what the Exchangor has.
                     The IRS has allowed for delayed exchanges, thereby giving the
                     Exchangor time to find replacement property for sale by a third party
                     after disposing of the relinquished property.
Time Constraints:   45 day Identification Period/180 day Exchange Period. The Exchangor
                     has 45 days from closing on the relinquished property to identify the
                     replacement property(s) which he is interested in acquiring. The 180
                           day Exchange Period also commences at closing of the relinquished
                           property and is the time frame allowed to complete the exchange.
Multiple Properties:       There are three rules regarding the number of replacement property(s)
                           allowed.
1. Three Property          Up to three properties of any fair market value can be identified and
Rule:                      acquired by Exchangor.
2.    200% Rule:           Any number of properties can be identified and acquired as long as the
                                                                  fair market
                           value does not exceed 200% of the value of the relinquished property.
3.     95% Rule:           If property with a value over 200% of the fair market value of the
                           relinquished property is identified, the Exchangor must acquire 95% of
                           the property identified.


It is important for anyone considering an exchange to obtain independent counsel from a tax
attorney or an accountant with respect to the income tax and other consequences of a 1031 tax deferred
exchange.

				
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