Useful 1031 Exchange terms

Key Terms & Concepts in the 1031 Exchange Process

Understanding the terminology used in 1031 exchanges can help you navigate the process with greater confidence. Below is a glossary of common terms you’ll encounter during your exchange with Standard Exchange, LLC.

Adjusted Basis
The original cost of the property, plus capital improvements, minus depreciation. Certain events—such as prior exchanges, gifts, or inheritances—can affect adjusted basis. Always consult with your tax or legal advisor to determine the correct amount.

Basis
The starting point for calculating gain or loss in a sale. Usually, it’s the purchase price of the property.

Boot
Any non–like-kind value received in an exchange, such as cash or debt relief. Boot is taxable to the extent of your realized gain. Two common types:

• Cash Boot: Cash or other non–real property value received

• Mortgage Boot: Debt you’re relieved of during the exchange

Buyer
The party acquiring the relinquished property in your exchange.

Capital Gain
The difference between the property’s selling price (minus closing costs) and its adjusted basis.

Constructive Receipt
Occurs if you, as the exchangor, have access to or control over exchange proceeds—even indirectly. IRS rules prohibit this and require that exchange funds be held by a Qualified Intermediary (QI) to preserve tax deferral.

Deferral
The ability to postpone capital gains tax by reinvesting in like-kind property through a valid 1031 exchange. Taxes are only due when you eventually sell the replacement property outside of another 1031 exchange.

Direct Deeding
A structure where:

• Title to the relinquished property transfers directly from the exchangor to the buyer, and

• Title to the replacement property transfers directly from the seller to the exchangor
  This simplifies the process while maintaining IRS compliance when a QI is involved.

Exchange Accommodation Titleholder (EAT)
A holding entity used in reverse and improvement exchanges to take title to a property temporarily. Standard Exchange provides and manages EAT entities in compliance with IRS guidelines.

Exchange Period
The time allowed to complete the exchange:

• Forward Exchange: Starts when you sell the relinquished property; ends 180 days later or by your tax return due date (whichever is earlier)

• Reverse Exchange: Begins when the EAT acquires title and also ends after 180 days

Exchangor (Taxpayer)
The individual or entity conducting the 1031 exchange and receiving potential tax deferral benefits.

IRC Section 1031
The part of the Internal Revenue Code that outlines the rules for like-kind exchanges of real property held for investment or business use.

Identification Period
The 45-day window (starting from the sale of the relinquished property) during which you must identify in writing the property(ies) you intend to purchase.
Three identification rules apply:

• Three-Property Rule: Identify up to three properties, regardless of value

• 200% Rule: Identify any number of properties, as long as their total value doesn’t exceed 200% of the relinquished property’s sale price

• 95% Exception: You can identify any number of properties if you acquire at least 95% of their total value

Like-Kind Property
Under IRS rules, all real estate held for investment or business is considered like-kind to other real estate (regardless of type or use), provided both are held for qualified purposes.

Examples of like-kind exchanges:

• Raw land ↔ Rental home

• Apartment building ↔ Retail center

• Farm ↔ Commercial office

• Leasehold interest (30+ years) ↔ Fee interest

• Improved ↔ Unimproved real estate

Qualified Exchange Accommodation Agreement (QEAA)
A written agreement between the exchangor and EAT, required within 5 business days after the EAT takes title to a property. It outlines the terms of a reverse or improvement exchange.

Qualified Intermediary (QI)
A third party (like Standard Exchange) who facilitates your exchange by preparing documents, holding proceeds, and ensuring IRS compliance. [Click here to learn more.]

Relinquished Property
The property you sell as part of the exchange. It must be held for investment or business purposes.

Replacement Property
The property you purchase to complete the exchange. It must also be held for investment or business purposes.

Reverse Exchange
Occurs when the replacement property is acquired before the relinquished property is sold. An EAT must be used to hold title to one of the properties during the transaction.

Seller
The owner of the replacement property you are acquiring.

Taxpayer
Another term for the exchangor—the individual or business performing the 1031 exchange and benefiting from tax deferral.

STANDARD EXCHANGE, LLC CANNOT AND DOES NOT PROVIDE TAX OR LEGAL ADVICE, NOR CAN WE MAKE ANY REPRESENTATIONS OR WARRANTIES REGARDING THE TAX CONSEQUENCES OF YOUR 1031 EXCHANGE TRANSACTION. 

Property owners must consult their own tax and legal advisors regarding any 1031 exchange transaction, including the execution and structure of the exchange and any potential tax benefits relating to the transaction. Standard Exchange’s role is limited to serving as qualified intermediary or exchange accommodation titleholder, as needed, to facilitate your exchange. The summaries of steps for, and information regarding, 1031 exchanges are for illustration purposes only and are not intended to detail every step of an exchange transaction. Each exchange will vary depending on the complexity of the transaction.