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Tax Deferred Exchange Terminology Boot The face amount of money or debt and the fair market value of non like-kind property received in an exchange. The fact that boot is received does not disqualify an exchange, however the boot will be subject to capital gains tax to the extent of recognized gain on the sale of relinquished property.
Constructive Receipt Income not actually received or possessed is constructively received and reportable if it is within the Exchanger's control.
Exchanger The taxpayer seeking to defer capital gains tax under the provisions of IRC Section 1031.
Exchange Period The period of time in which the Exchanger must acquire title to replacement property to qualify under the safe-harbor for the exchange. The period ends on the earlier of the day 180 days after the relinquished property is transferred or the due date (including extensions) of the Exchanger's federal income tax return for the year in which the Exchanger gave up the property in the exchange.
Identification Period The 45 day period in which the Exchanger must identify replacement property for exchange. This period begins on the day of title to the relinquished property and ends at midnight on the 45th day following the transfer.
Like-Kind Property The term like-kind has reference to the nature and character of the property and not to its grade or quality, so that one kind or class of property may not be exchanged, under section 1031, for property of a different class or find. Accordingly, real property should not be exchanged for personal property. As a general rule, as long as the purpose of the taxpayer is to hold the property as an investment of for use in a trade or business, real property will be like kind with other real property.
Mortgage Boot consists of the liabilities assumed or taken subject to in the exchange. It is not as recognizable as cash or other non like-kind property. The taxpayer is considered to have received mortgage boot even if the buyer refinances the property as part of the exchange and used the proceeds to pay-off the taxpayers mortgage.
Property Boot A taxpayer who receives money or nonqualifying property in consider to have received property boot.
Qualified Intermediary A third-party entity that serves to facilitate the section 1031 exchange on behalf of the Exchanger. Also know as the facilitator or accommodator. The qualified intermediary will work under an agreement with the Exchanger to take possession of proceeds from the escrow of the relinquished property and utilize those same proceeds to fund the escrow of the replacement property. This safe-harbor prevents the Exchanger from having constructive receipt of the funds from the sale of the relinquished property.
Relinquished Property (also referred to as the exchange property or down-leg property) is the property originally owned by the Exchanger and sold by the Exchanger in the like-kind exchange process.
Replacement Property (also referred to as acquisition property or up-leg property) is the property acquired by the Exchanger in the like-kind exchange process.
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