Accelerated Cost Recovery System (Acrs)
A depreciation method that assigns assets periods of cost recovery based on specific Internal Revenue Service criteria. Since 1986, the modified Accelerated Cost Recovery System (MACRS) has been far more prevalent.
A depreciation method that assigns assets periods of cost recovery based on specific Internal Revenue Service criteria. Since 1986, the modified Accelerated Cost Recovery System (MACRS) has been far more prevalent.
An independent person, company, or entity that enters into a written agreement with the exchanger to facilitate the transfer of proceeds from the exchanger to the buyer of the relinquished property and from the exchanger to the seller of the replacement property to affect tax-deferred exchange under IRC Section 1031. The Accommodator has no economic interest except for any compensation (exchange fee) it may receive for acting as an Accommodator in facilitating the exchange as defined in Section 1031 of the Internal Revenue code. The Accommodator is technically referred to as the Qualified Intermediary, but is also known as the Accommodator, Facilitator or Intermediary.
The amount you use to determine your capital gain or loss from a sale or disposition of property. To determine the adjusted cost basis for your property, you must start with the original purchase cost. You then add your purchasing expenses, your cost of capital improvements and principal payments of special assessments (sewer and streets) to the property and reduced by depreciation deductions you have taken or were allowed to take, any casualty losses taken, and/or any demolition losses taken.
An after- tax return is any profit made on an investment after subtracting the amount due for taxes. Investors use after-tax return to determine actual earnings. An after-tax return may be expressed nominally or as a ratio.
An entity that acts on behalf of the taxpayer. A Qualified Intermediary (Accommodator or Facilitator) cannot be your agent at the time of or during a tax-deferred, like-kind exchange. For 1031 Exchange purposes, an agent includes your employee, attorney, accountant or investment banker, or real estate agent or broker within the two-year period prior to and the two-year period after the investor’s tax-deferred like-kind exchange transaction. An agency relationship does not exist with entities that offer Section 1031 Exchanges services or routine title, escrow, trust or financial services.
Alternative Minimum Tax (AMT)
An alternative minimum tax (AMT) recalculates income tax after adding certain tax preference items back into adjusted gross income. AMT uses a separate set of rules to calculate taxable income after allowed deductions. Preferential deductions are added back into the taxpayer’s income to calculate their alternative minimum taxable income (AMTI), and then the AMT exemption is subtracted to determine the final taxable amount.
Any property owned by a person or company, regarded as having value.
The implementation of an investment strategy that attempts to balance risk versus reward by adjusting the percentage of each asset in an investor’s portfolio according to the investor’s risk tolerance, goals and investment time frame.
A grouping of investments that exhibit similar characteristics and are subject to the same laws and regulations.
A balanced exchange ensures that the taxpayer defers 100% of his or her taxes on capital gain and depreciation recapture. To achieve a balanced exchange 1) acquire a replacement property that is equal to or greater than the relinquished property; 2) reinvest all of the net equity from the relinquished property in the replacement property; and 3) assume debt on the replacement property that is equal to or greater than the debt on the replacement property or contribute cash to make up the deficiency.
The original purchase price or cost of your property plus any out-of-pocket expenses, such as improvements, brokerage commissions, escrow costs, title insurance premiums, sales tax (if personal property) and other closing costs directly related to the acquisition.
An individual, company, organization, or other entity named in numerous legal entities who receives a financial benefit upon the death of the principal. A beneficiary can be an individual, company, organization, etc.
Also known as a fixed-income security, is a debt instrument created for the purpose of raising capital. They are loan agreements between the bond issuer and an investor, in which the bond issuer is obligated to pay a specified amount of money at specified future dates. Bonds are usually issued in multiples of $1,000.
Non-like-kind property (cash or other property) given by one party to another party in a tax-deferred, like-kind exchange that is taxable. Boot received may be offset by boot given.
A exchange whereby the Qualified Intermediary and/or Exchange Accommodation Titleholder acquires title and holds title to the replacement property on behalf of the Exchanger, during which time structures or improvements are constructed or installed on or within the replacement property.
Real property, tangible depreciable property, intangible property and other types of property contained or used in a business. Exchanging one business for another business is not permitted under Internal Revenue Code Section 1031. However, taxpayers may exchange business assets on an asset-by-asset basis, usually as part of a Mixed-Property (Multi-Asset) Exchange.
The rise or decline in value of a capital asset (investment or real estate) that gives it a different value than the purchase price. The gain or loss is not realized until the asset is sold.
Long-term capital gains tax is applied to assets held one year or longer. Investments may include real estate, stocks, bonds, collectibles and tangible depreciable personal property.
A capital improvement is the addition of a permanent structural change or the restoration of some aspect of a property that will either enhance the property’s overall value, increase its useful life or adapt it to new uses. Instead of taking a deduction for the cost of improvements in the year paid, you add the cost of the improvements to the basis of the property. If the property you improved is a building that is being depreciated, you must depreciate the improvements over the same useful life as the building.
The capitalization rate, often called cap rate, the ratio of Net Operating Income (NOI) to property asset value. To obtain a property’s capitalization rate, divide the net operating income of a property by its value. To determine a property’s value, divide the property’s net operating income by the desired capitalization rate. The Income-Capitalization Method of appraisal is used to value investment property, such as apartment buildings, commercial office buildings and retail malls.
Are short-term, highly liquid investments with a maturity date of 3 months or less such as U.S. Treasury securities, certificates of deposit, and money market fund shares, that can easily be liquidated into cash.
Is an irrevocable trust designed to provide financial support to one or more charities for a period of time, with the remaining assets eventually going to family members or other beneficiaries. This type of trust can reduce estate taxes and allows the trustor’s heirs to retain control of the assets.
Charitable Remainder Trust
A tax-exempt irrevocable trust designed to reduce the taxable income of individuals by first dispersing income to the beneficiaries of the trust for a specified period of time and then donating the remainder of the trust to the designated charity. The trustor receives a charitable contribution deduction in the year in which the trust is established, and the assets placed in the trust are exempt from capital gain tax.
Any object, such as baseball cards, coins, stamps, works of art and memorabilia, that is held for investment. Collectibles are exchangeable under Internal Revenue Code Section 1031.
A type of joint ownership of assets between married couples. It’s the law in nine states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Community property means that all assets purchased or acquired by a couple during their marriage are owned equally by both. It is the case regardless of how the assets are titled. Gifts and inheritances are an exception.
A exchange transaction whereby the disposition of the relinquished property and the acquisition of the replacement property close or transfer at the same time. A Concurrent Exchange is also referred to as a Simultaneous Exchange.
A large property complex divided into individual units and sold. Ownership usually includes a nonexclusive interest in certain “common properties” controlled by the condominium management.
Exercising control over your exchange funds or other property. Control over your exchange funds includes having money or property from the exchange credited to your bank account or property or funds reserved for you. Being in constructive receipt of exchange funds or property may result in the disallowance of the tax-deferred, like-kind exchange transaction, thereby creating a taxable sale.
Language to be included in the Purchase and Sale Contracts for both relinquished and replacement property that indicates and discloses that the transaction is part of an intended tax-deferred, like-kind exchange transaction and requires that all parties cooperate in completing said exchange.
A form of real estate ownership, in which individual owners hold shares of stock in a corporation. Each owner leases property from the corporation under a proprietary lease.
A legal entity that is separate and distinct from its owners. Corporations enjoy most of the rights and responsibilities that an individual possesses: enter contracts, loan and borrow money, sue and be sued, hire employees, own assets and pay taxes.
A reduction in amount of gross income, gross estate, or from a gift, lowering the amount on which tax is assessed.
The sale or disposition of real estate or personal property (relinquished property) and the acquisition of like-kind real estate or personal property (replacement property) structured as a tax-deferred, like-kind exchange transaction pursuant to Section 1031 of the Internal Revenue Code and Section 1.1031 of the Treasury Regulations to defer Federal, and in most cases state, capital gain and depreciation recapture taxes. Also called a 1031 Exchange, a like-kind exchange, and a Starker exchange.
A tax-deferred, like-kind exchange where there is a delay or period between the close and transfer of the Exchanger’s relinquished property and replacement property.
Any type of asset that is eligible for depreciation treatment in accordance with the Internal Revenue Service (IRS) rules. Depreciable property can include real estate (except land), vehicles, computers and office equipment.
An accounting method of allocating the cost of a tangible asset over its useful life and is used to account for declines in value. Long-term assets are depreciated for both tax and accounting purposes.
The gain received from the sale of depreciable capital property that must be reported as income. Depreciation recapture is assessed when the sale price of an asset exceeds the tax basis or adjusted cost basis. The difference between these figures is thus “recaptured” by reporting it as income.
A practice authorized by Treasury Revenue Ruling 90-34 whereby either the relinquished property or the replacement property can be deeded directly from seller to buyer without deeding the property to the Qualified Intermediary.
The sale or other disposal of property that causes a gain or a loss including like-kind exchanges and involuntary conversions.
A payment made by a corporation to its shareholders, usually as a distribution of profits. When a corporation earns a profit or surplus, the corporation is able to re-invest the profit in the business (called retained earnings) and pay a proportion of the profit as a dividend to the shareholders.
The value of a person’s ownership in real property or securities; the difference between the value of the assets and the value of the liabilities.
The sale or disposition of real estate or personal property (relinquished property) and the acquisition of like-kind real estate or personal property (replacement property) structured as a tax-deferred, like-kind exchange transaction pursuant to Section 1031 of the Internal Revenue Code and Section 1.1031 of the Treasury Regulations to defer Federal, and in most cases state, capital gain and depreciation recapture taxes.
Exchange Accommodation Titleholder (“EAT”)
An unrelated party that holds the Qualified Indicia of Ownership (customarily the title) of either the replacement or relinquished property to facilitate a reverse and/or build-to-suit tax-deferred, like-kind exchange transaction pursuant to Revenue Procedure 2000-37.
A written agreement between the Qualified Intermediary and Exchanger setting forth the Exchanger’s intent to exchange relinquished property for replacement property, as well as the terms, conditions and responsibilities of each party pursuant to the tax-deferred, like-kind exchange transaction.
The period during which the Exchanger must complete the acquisition of the replacement property(ies) in his or her tax-deferred, like-kind exchange transaction. The exchange period is 180 calendar days from the transfer of the Exchanger’s first relinquished property, or the due date (including extensions) of the Exchanger’s income tax return for the year in which the tax-deferred, like-kind exchange transaction took place, whichever is earlier, and is not extended due to holidays or weekends.
The taxpayer who is completing the tax-deferred, like-kind exchange transaction. An Exchanger may be an individual, partnership, LLC, corporation, institution or business.
The rules for like-kind exchanges do not apply to property held for personal use (such as homes, boats or cars); cash; stock in trade or other property held primarily for sale (such as inventories, raw materials and real estate held by developers); stocks, bonds, notes or other securities or evidences of indebtedness (such as accounts receivable); partnership interests; certificates of trust or beneficial interest.
Is an estimate of the market value of a property, based on what a knowledgeable, willing, and unpressured buyer would probably pay to a knowledgeable, willing, and unpressured seller in the open market.
Income from investments, such as CDs, Social Security benefits, pension benefits, some annuities, or most bonds, in which real return rates or periodic income is received at regular intervals like annually, semi-annual, quarterly or monthly.
An undivided fractional interest or partial interest in real estate. For example, a large property may be too expensive to maintain by one owner so instead of buying the whole property, a person may purchase a share of it along with other investors, becoming a percentage owner. Each owner shares in the maintenance and taxes.
Additional value that attaches to property because the property is an integral part of an ongoing business activity. It includes value based on the ability of a business to continue to function and generate business even though there is a change in ownership.
Is an intangible asset associated with the purchase of one company by another. The value of a company’s brand name, solid customer base, good customer relations, good employee relations, and any patents or proprietary technology represent some examples of goodwill. The goodwill of a business is not exchangeable under Internal Revenue Code Section 1031.
The ratio of the price of a real estate investment to its annual rental income before accounting for expenses such as property taxes, insurance, and utilities; GRM is the number of years the property would take to pay for itself in gross rent received.
In a typical Internal Revenue Code (IRC) 1031 delayed exchange, a taxpayer has 45 days from the date of the sale of the relinquished property to identify a potential replacement property.
A tax-deferred, like-kind exchange whereby the Qualified Intermediary and/or Exchange Accommodation Titleholder acquires title and holds title to the replacement property on behalf of Exchanger, during which time new or additional structures or improvements are constructed or installed on or within the replacement property. The ability to refurbish, add capital improvements, or build from the ground up, while using tax-deferred dollars allows a taxpayer to reinvest in a replacement property that meets their precise business needs or investment criteria.
For land or buildings, capital improvements are the addition of a permanent structural change or the restoration of some aspect of a property that will either enhance the property’s overall value, prolongs its useful life, or adapt it to new uses. Instead of taking a deduction for the cost of improvements in the year paid, you add the cost of the improvements to the basis of the property. If the property you improved is a building that is being depreciated, you must depreciate the improvements over the same useful life as the building.
Taxes owed to the federal government based upon the taxpayer’s income, including income and capital gain derived from a property sale. In a 1031 Exchange, income and capital gain generated when property is transferred is not immediately taxed. The income tax is deferred until a new taxable event occurs.
Intangible Personal Property
Property that does not have value itself but represents something else. Trademarks, patents and franchises are examples of intangible property. Aircraft, business furniture and equipment are examples of tangible personal property.
An unrelated party who participates in the tax-deferred, like-kind exchange to facilitate the disposition of the Exchanger’s relinquished property and the acquisition of the Exchanger’s replacement property. The Intermediary has no economic interest except for any compensation (exchange fee) it may receive for acting as an Intermediary in facilitating the exchange as defined in Section 1031 of the Internal Revenue Code. The Intermediary is technically referred to as the Qualified Intermediary, but is also known as the Accommodator, Facilitator or Intermediary.
Internal Revenue Code 1031
Section 1031 of the Internal Revenue Code allows a taxpayer to defer recognition of capital gains and related federal income tax liability on the exchange of certain types of property, a process known as a 1031 exchange. In 1979, this treatment was expanded by the courts to include non-simultaneous sale and purchase of real estate.
A trust where its terms cannot be modified, amended or terminated without the permission of the grantor’s named beneficiaries.
A legal arrangement in which two or more people own a property together, each with equal rights and obligations. When one of the owners in a joint tenancy dies, that owner’s interest in the property passes to the survivors without the property having to go through probate.
Like-Class And Like-Kind Personal Property
Refers to the nature or character of the property. Determining like-kind in connection with personal property can be difficult. and not to its grade or quality. Assets that are like-class can be said can be said to meet the like-kind requirement. Personal property listed or contained within the same general asset classification or product classification (“SIC Code”) will be of like-class and therefore like-kind.
The sale or disposition of real estate or personal property (relinquished property) and the acquisition of like-kind real estate or personal property (replacement property) structured as a tax-deferred, like-kind exchange transaction pursuant to Section 1031 of the Internal Revenue Code and Section 1.1031 of the Treasury Regulations to defer Federal, and in most cases state, capital gain and depreciation recapture taxes.
Property that is exchangeable with another property. Refers to the nature or character of the property and not to its grade or quality.
The following types of properties generally qualify as like-kind real property:
-Single-family residential properties
-Multi-family residential properties
-Commercial office buildings
-Retail shopping centers or strip malls
-Storage units
-Industrial warehouses
-Vacant, undeveloped, or raw land
-Oil and gas interests
-Mineral rights
-Water rights
-Air rights
-Tenant-in-common (TIC) investment properties (fractional interests)
-Delaware Statutory Trust (DST) investment properties
-Properties held in Title Holding Trusts/Land Trusts (beneficial interests)
-Vacation rentals (see Vacation Properties)
Limited Liability Company (LLC)
A corporate structure in the United States whereby the owners are not personally liable for the company’s debts or liabilities. Limited liability companies are hybrid entities that combine the characteristics of a corporation with those of a partnership or sole proprietorship.
A partnership consisting of a general partner, who manages the business or real estate and has unlimited personal liability for the debts and obligations of the Limited Partnership, and a limited partner, who has limited liability (amount of investment) bur cannot participate in management.
A trust sometimes called an “inter vivos” or “revocable” trust is a written legal document through which your assets are placed into trust for your benefit during your lifetime and then transferred to designated beneficiaries at your death by your chosen representative, called a “successor trustee”.
Mixed Property (Multi-Asset) Exchange
An exchange that contains different types of properties, such as depreciable tangible personal property, real property, and intangible personal property. In a Mixed Property Exchange, relinquished properties are segmented in like-kind groups and matched with corresponding like-kind groups of replacement properties.
Modified Accelerated Cost Recovery System (MACRS)
Is a depreciation system which allows the capitalized cost basis of assets to be recovered over a specified life of the asset by annual deductions for value depreciation. MACRS is the depreciation system used in the United States and was created after the release of the Tax Reform Act of 1986.
When you assume debt on your replacement property that is less than the debt on your relinquished property, you receive mortgage boot or mortgage relief. Mortgage boot received triggers the recognition of gain and is taxable, unless offset by cash boot added or given up in the exchange.
Multiple Property Exchange
Disposition and/or acquisition of more than one property in a Section 1031 Exchange.
A simple exercise to determine the potential for exposing taxable assets or “boot” in an exchange. The Napkin Test compares the value, equity and mortgage of the relinquished and replacement properties. By going across or up in value, equity, and mortgage there is no taxable boot in the exchange.
The calculations are based off the following: If when subtracting the relinquished property value from the replacement property value a zero or positive amount is given, then there is no taxable boot. If a negative amount is given, then taxes are paid on that amount.
The Napkin Test was literally written on a napkin at a seminar by California tax attorney Marvin Starr of Miller, Starr and Regalia.
A property’s gross income (scheduled rents and 100% vacancy factor) less its total annual expenses (including management costs, utilities, services, repairs, a vacancy factor and a credit loss factor) plus any additional other income (vending machines, coin laundry operations, etc.). Principal and interest payments on the mortgage and tax liability are not included.
Oil And Gas Royalty Properties
In 1968, the IRS published the Revenue Ruling 68-331 clarifying Section 1031 of the 1954 Act. The ruling established that real estate ownership interests, whether above or below the ground, met the definition of “like-kind” for an exchange.
Unlike oil and gas drilling investments, royalty owners do not invest in capital equipment or field operations. Royalty owners do not get billed for exploration, drilling or operating wells, nor do they share in any of the risks or liabilities associated with that side of the industry.
Over the past four decades, court rulings have re-affirmed that oil and gas royalty interests qualify as “like-kind” to all other forms of real property.
Any type of income taxed at the U.S .marginal tax rates. This includes wages, salaries, tips, and commissions, but excludes long-term capital gains and qualified dividends, which are taxed at more favorable rates.
Opportunity Zones - Qualified Opportunity Zones (QOZ)
Is a designation created by the Tax Cuts and Jobs Act of 2017 allowing for certain investments in lower income areas to have tax advantages.
Is a designation created by the Tax Cuts and Jobs Act of 2017 allowing for certain investments in lower income areas to have tax advantages.
An exchange that entails receiving cash, excluded property and/or non-like-kind property and/or any net reduction in debt (mortgage relief) on the replacement property, as well as an exchange of qualified, like-kind property. In the case of a partial exchange, tax liability would be incurred on the non-qualifying portion and capital gain deferred on the qualifying portion under Internal Revenue Code Section 1031.
An exchange that entails receiving cash, excluded property and/or non-like-kind property and/or any net reduction in debt (mortgage relief) on the replacement property, as well as an exchange of qualified, like-kind property. In the case of a partial exchange, tax liability would be incurred on the non-qualifying portion and capital gain deferred on the qualifying portion under Internal Revenue Code Section 1031.
Partnership (Tenancy In Partnership)
An association of two or more persons who engage in a business for profit. A partnership is created by an agreement, which does not have to be in writing. However, for the partnership to hold title in a partnership name, the partnership agreement must be signed, acknowledged and recorded. Tenancy in partnership allows any number of partners to have equal or unequal interest in property in relation to their interests in the partnership. Profits and liabilities are passed through to the members. Partnership entities can complete exchanges. Partnership interests are not exchangeable.
Personal Property Exchange
A tax-deferred transfer of personal property (relinquished property) for other personal property (replacement property) that are of like-kind or like-class to each other.
Principal Residence Exemption
Exclusion from capital gain tax on the sale of principal residence of $250,000 for individual taxpayers and $500,000 for couples, filing jointly, under Internal Revenue Code Section 121. Property must have been the principal residence of the taxpayer(s) 24 months out of the last 60 months. In the case of a dual-use property, such as a ranch, retail store, duplex or triplex, the taxpayer can defer taxes on the portion of the property used for business or investment under Internal Revenue Code Section 1031 and exclude capital gain on the portion used as the primary residence under Section 121.
An escrow agreement with a qualified intermediary that expressly limits your rights to receive, pledge, borrow or obtain any benefits from funds held in the escrow account, but the funds are held in your name and not the name of the qualified intermediary.
Qualified Exchange Accommodation Arrangement
The contractual arrangement between the Exchanger and the Exchange Accommodator Titleholder whereby the EAT holds a parked property pursuant to Revenue Procedure 2000-37.
An unrelated party who participates in the tax-deferred, like-kind exchange to facilitate the disposition of the Exchanger’s relinquished property and the acquisition of the Exchanger’s replacement property. The Qualified Intermediary has no economic interest except for any compensation (exchange fee) it may receive for facilitating the exchange as defined in Section 1031 of the Internal Revenue Code. The Qualified Intermediary is authorized under Section 1.1031 of the Department of the Treasury Regulations and is the correct technical reference, but the Qualified Intermediary is also known as the Accommodator, Facilitator or Intermediary.
A trust, wherein the trustee is not the Exchanger or a disqualified person and that limits the Exchanger’s rights to receive, pledge, borrow or otherwise obtain the benefits of the tax-deferred, like-kind exchange cash balance and/or other assets from the sale of the relinquished property in compliance with the Treasury Regulations. The Qualified Trust Account also ensures that the Exchanger’s exchange funds and/or assets are held as fiduciary funds and are therefore protected against claims from potential creditors of the Qualified Intermediary.
A trust, wherein the trustee is not the Exchanger or a disqualified person and that limits the Exchanger’s rights to receive, pledge, borrow or otherwise obtain the benefits of the tax-deferred, like-kind exchange cash balance and/or other assets from the sale of the relinquished property in compliance with the Treasury Regulations. The Qualified Trust Account also ensures that the Exchanger’s exchange funds and/or assets are held as fiduciary funds and are therefore protected against claims from potential creditors of the Qualified Intermediary.
Fixed property, principally land and buildings (improvements), including but not limited to homes, apartment buildings, shopping centers, commercial buildings, factories, condominiums, leases of 30-years or more, quarries and oil fields. All types of real property can be exchanged for all other types of real property.
Real Estate Investment Trust (REIT)
A REIT is a company that owns, operates or finances income-producing real estate. REITs provide all investors the chance to invest in portfolios of real estate assets the same way they invest in other industries through the purchase of individual company stock, which disqualifies them from being able to do a 1031 Exchange. By leasing space and collecting rent on its real estate, the company generates income which is then paid out to shareholders in the form of dividends. REITs must pay out at least 90 percent of their taxable income to the shareholders.
The sale or disposition of real estate (relinquished property) and the acquisition of like-kind real estate (replacement property) structured as a tax-deferred, like-kind exchange transaction pursuant to Section 1031 of the Internal Revenue Code and Section 1.1031 of Treasury Regulations to defer Federal, and in most cases state, capital gain and depreciation recapture taxes.
Related parties include family members (spouses, children, siblings, parents or grandparents, but not aunts, uncles, cousins or ex-spouses) and a corporation in which you have more than a 50% ownership; or a partnership or two partnerships in which you directly or indirectly own more than a 50% share of the capital or profits. Related party 1031 Exchange transactions occur when you sell your relinquished property to, or you buy your replacement property from, a related party. Related party 1031 Exchanges might qualify provided you comply with specific regulations and rulings issued by the Internal Revenue Service.
The property to be sold or disposed of by the Exchanger in the tax-deferred, like-kind exchange transaction.
The property to be sold or disposed of by the Exchanger in the tax-deferred, like-kind exchange transaction.
A tax-deferred, like-kind exchange transaction whereby the replacement property is purchased prior to closing on the relinquished property. An investor may need to consider a reverse exchange in a seller’s market, where properties are selling quickly, and inventory is scarce.
Reverse/Improvement Exchange
An improvement exchange occurs when the taxpayer wants to acquire a replacement property and build improvements on it during the exchange period.
A trust whereby provisions can be altered or canceled dependent on the grantor. During the life of the trust, income earned is distributed to the grantor, and only after death does the property transfer to the beneficiaries.
A trust whereby provisions can be altered or canceled dependent on the grantor. During the life of the trust, income earned is distributed to the grantor, and only after death does the property transfer to the beneficiaries.
All contributions are made on an after-tax basis, they are not tax deductible at the time of contribution. Earnings on the money invested in a Roth IRA account grow tax-free if withdrawn.
A small (less than 100 shareholders) corporation that elects to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corporations to avoid double taxation on the corporate income. S corporations are responsible for tax on certain built-in gains and passive income at the entity level.
A provision of a statute or a regulation that specifies that certain conduct will be deemed not to violate a given rule. Treasury Regulations provide certain Safe Harbors that assist Qualified Intermediaries and Exchangers in structuring tax-deferred, like-kind exchange transactions so they can be assured that no constructive receipt issues will be encountered during the exchange cycle.
Seller Carry-Back Financing
The seller acts as the bank or lender and carries a second mortgage on the subject property, which the buyer pays down each month along with their first mortgage. In a Section 1031 Exchange, seller carry-back financing is treated as boot, unless it is sold at a discount on the secondary market or assigned to the seller as a down payment on the replacement property.
The practice of transferring or deeding title of the relinquished property to the Qualified Intermediary first and then sequentially and immediately transferring or deeding title to the buyer to properly structure a tax-deferred, like-kind exchange prior to the issuance of Treasury Revenue Ruling 90-34. Sequential deeding is used only in special tax-deferred, like-kind exchange transactions today that require special structuring.
A tax-deferred, like-kind exchange transaction whereby the disposition of the relinquished property and the acquisition of the replacement property close or transfer at the same time. In a true simultaneous exchange, the two parties sit down at the closing table and literally swap deeds. A Simultaneous Exchange is also referred to as a Concurrent Exchange.
Another common name for the tax-deferred, like-kind exchange transaction based on a court decision that was handed down (Starker vs. Commissioner) in 1979. The Ninth Circuit Court of Appeals eventually agreed with Starker that its delayed tax-deferred, like-kind exchange transaction did in fact constitute a valid exchange pursuant to Section 1031 of the Internal Revenue Code. This ruling set the precedent for our current day delayed exchange structures.
Straight-Line Depreciation Method
A default depreciation method used to recognize the carrying amount of a fixed asset evenly over its useful life. It is employed when there is no pattern to the manner in which an asset is to be utilized over time.
Tangible Personal Property
Property other than real estate that physically exists and can be felt or touched. Aircraft, business equipment and vehicles are examples of tangible personal property. Assets such as trademarks, patents and franchises only represent value and are therefore intangible property.
The delay of paying taxes to some point in the future. In theory, the net taxes paid should be the same. Taxes can sometimes be deferred indefinitely or be taxed at a lower rate in the future. Tax-deferred, like-kind exchange transactions are a common method of deferring capital gain and depreciation recapture taxes. Property other than real estate that physically exists and can be felt or touched. Aircraft, business equipment and vehicles are examples of tangible personal property. Assets such as trademarks, patents and franchises only represent value and are therefore intangible property.
The delay of paying taxes to some point in the future. In theory, the net taxes paid should be the same. Taxes can sometimes be deferred indefinitely or be taxed at a lower rate in the future. Tax-deferred, like-kind exchange transactions are a common method of deferring capital gain and depreciation recapture taxes. Property other than real estate that physically exists and can be felt or touched. Aircraft, business equipment and vehicles are examples of tangible personal property. Assets such as trademarks, patents and franchises only represent value and are therefore intangible property.
The person or organization (such as a company) subject to pay a tax. Taxpayers have an Identification Number, a reference number issued by a government to its citizens. The person or entity that is completing the tax-deferred, like-kind exchange transaction, commonly referred to as the Exchanger.
Tenancy-In-Common Interest (Co-Tenancy)
A separate, undivided fractional interest in property. A tenancy-in-common interest is made up of two or more individuals, who have equal rights of possession. Co-tenants’ interests may be equal or unequal and may be created at different times and using different conveyances. Each co-tenant has the right to dispose of or encumber his or her interest without the agreement of the other co-tenants. He or she cannot, however, encumber the entire property without the consent of all of the co-tenants. In an Internal Revenue Code Section 1031 Exchange, an Exchanger may acquire a tenancy-in-common interest with one or more other investors, as his or her like-kind replacement property. For purposes of Internal Revenue Code Section 1031 Exchanges, a co-tenancy must only engage in investment activities, including supporting services that would typically accompany the investment. Co-tenants that are engaging in separate business activities are treated as partnerships by the IRS.
Absolute and sole ownership of property by a legal entity, without cotenants, joint-tenants, or partners.
Absolute and sole ownership of property by a legal entity, without cotenants, joint-tenants, or partners.
A legal entity created by an individual in which one person or institution holds the right to manage property or assets for the benefit of someone else. A trust is a fiduciary relationship in which one party, known as a trustor, gives another party, the trustee, the right to hold title to property or assets for the benefit of a third party, the beneficiary.
A person or firm that holds and administers property or assets for the benefit of a third party. A trustee may be appointed for a wide variety of purposes, such as in the case of bankruptcy, for a charity, for a trust fund or for certain types of retirement plans or pensions.
Vacation Properties And Second Homes
A Vacation Property or second home may qualify for a 1031 Exchange if you follow safe harbor guidelines outlined in IRS Revenue Procedure 2008-16. The subject property must be held as investment property for at least 24 months, must be rented for a minimum 14 days each year during the 24 months, and cannot personally be used for more than 14 days or 10% of the total number of days per year that you rented the property.A person or firm that holds and administers property or assets for the benefit of a third party. A trustee may be appointed for a wide variety of purposes, such as in the case of bankruptcy, for a charity, for a trust fund or for certain types of retirement plans or pensions.
