What are some of the exchange terms and phrases that are often used in connection with a 1031 Deferred Exchange?
As with any other specific area of real estate law, Tax-Deferred Exchanges under IRC Section 1031 have their own language, which may be confusing to those who are unfamiliar with these transactions. The following are some common exchange terms and phrases. • Boot – Fair Market Value of non-qualified (not “like-kind”) property received in an exchange. (Examples: cash, notes, seller financing, furniture, supplies, reduction in debt obligations.) • Constructive Receipt – A term referring to the control of proceeds by an Exchange Party even though funds may not be directly in his possession. • Exchange Party – The property owner(s) seeking to defer capital gain tax by utilizing a Section 1031 exchange. (The Internal Revenue Code uses the term “Taxpayer.”) • Like-kind Property – This term refers to the nature of character of the property, not its grade or quality. Generally, real property is “like-kind” as to all other real property as long as the Exchange Party’s intent is to hold the prop
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