Terms to Know

1031 Exchange Terminology

If you’re new to the world of IRC Section 1031 exchanges, an important part of understanding the process is becoming familiar with industry terminology. Here are some key terms you should know:

Deferred gain: The amount of “realized gain” that’s not currently taxable.

Like-kind: No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for “like-kind” property, which is to be held either for productive use in a trade or business or for investment.

Qualified intermediary: A third party or facilitator who assists in completing a successful section 1031 tax-deferred exchange.

Realized gain: The difference between sales prices and adjusted tax basis.

Recognized gain: The amount of “realized gain” that’s currently taxable.

Replacement property: The property the Exchanger is buying (also called “new property”).

Relinquished property: The property the Exchanger is selling (also called “old property”).

Section 1031: This section of the Internal Revenue Code provides that tax on gain from the sale of real estate or personal property held for investment or business purposes can be deferred if the property is exchanged (rather than sold) for other like-kind property.

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