Common 1031 Exchange & DST Property Terms

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  • 1031 exchange: A swap of one investment property for another that allows capital gains taxes to be deferred.

  • 1031 exchanges: Multiple transactions involving the tax-deferred swap of investment properties.

  • 1031 rules: The specific IRS regulations (Section 1031) that must be followed to qualify for a tax-deferred exchange.

  • 1031 exchange rules: The set of IRS regulations governing the timeline and requirements for tax-deferred property swaps.

  • What is 1031: A common search query for an introduction to Section 1031 tax-deferred exchanges.

  • Qualified intermediary 1031: An essential third-party service provider that holds exchange funds to ensure the transaction remains tax-deferred.

  • 1031 exchange real estate: A transaction allowing an investor to sell a property and reinvest the proceeds in a new property while deferring capital gains.

  • Section 1031 real estate: The specific portion of the Internal Revenue Code that allows for tax-deferred property exchanges.

  • Delaware Statutory Trust (DST): A fractional ownership structure that allows individual investors to own shares of high-quality commercial real estate.

  • Triple net lease (NNN): A lease agreement where the tenant pays all expenses (taxes, insurance, maintenance) in addition to rent.

  • REIT (Real Estate Investment Trust): A company that owns, operates, or finances income-producing real estate.

  • 721 exchange: Also known as an UPREIT; allows an investor to exchange property for shares in a REIT without immediate tax.

  • Capital gains: Profit from the sale of an asset or investment, subject to taxation unless deferred.

  • Depreciation recapture: The IRS procedure for collecting income tax on a gain from the sale of depreciable business property.

  • Like-kind property: A term used by the IRS to describe properties of the same nature or character, regardless of quality or grade.

  • Replacement property: The new property acquired in a 1031 exchange to replace the one sold.

  • Relinquished property: The original investment property sold as part of a 1031 exchange.

  • Boot: Cash or non-like-kind property received in an exchange, which is generally taxable.

  • Identification period: The 45-day window after selling a property to identify potential replacement properties.

  • Exchange period: The 180-day window to complete the purchase of a replacement property.

  • Reverse 1031 exchange: An exchange where the replacement property is purchased before the relinquished property is sold.

  • Improvement exchange: An exchange where proceeds are used to build on or improve the replacement property.

  • Constructive receipt: A tax term referring to when an investor has control over funds, which would disqualify a 1031 exchange.

  • Basis (Tax Basis): The original value of an asset for tax purposes, usually the purchase price.

  • Adjusted basis: The original cost of a property plus improvements, minus depreciation.

  • Stepped-up basis: The adjustment of an inherited asset's value to its fair market value at the time of the owner's death.

  • Tenants in Common (TIC): A structure where two or more parties own fractional interests in a property.

  • Net lease: A lease where the tenant pays a portion or all of the taxes, insurance, and maintenance.

  • Accredited investor: An investor who meets specific SEC income or net worth requirements to invest in private placements like DSTs.

  • Private Placement Memorandum (PPM): The legal document provided to prospective investors in a DST or real estate fund.

  • 1031 exchange primary residence: Regulations regarding the conversion of a primary home into an investment property for exchange purposes.

  • Vacant land 1031: Applying exchange rules to the sale and purchase of undeveloped land.

  • Multi-family 1031: Exchanging into or out of apartment complexes or multi-unit residential buildings.

  • Commercial real estate 1031: The application of tax-deferred strategies to office, retail, or industrial assets.

  • DST 1031 investment: Using a Delaware Statutory Trust as the replacement property in a 1031 exchange.

  • Estate planning 1031: Using tax-deferred exchanges to preserve wealth for heirs.

  • Passive income real estate: Investments like DSTs or NNN leases that require little to no management from the owner.

  • Portfolio diversification: Using 1031 proceeds to buy into multiple DSTs to spread risk across different markets.

  • Cash-out refinance vs 1031: Comparing the tax implications of pulling equity out versus exchanging the property.

  • Tax-deferred reinvestment: The general strategy of moving capital from one asset to another without paying immediate taxes.