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1031 Exchange Glossary

Every term a seller meets between listing and closing, defined in plain words with the rule it comes from and a worked example of where it bites.

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Exchange paperwork is written in a vocabulary most sellers meet once. Each entry here defines one term, names the statute, regulation or form it comes from, and shows with a worked example where the term changes the money.

Entries link to the question pages and guides where the term does its work, so a definition is never a dead end.

Deadlines and identification

200 Percent Rule (200% Rule)

The 200% rule lets you identify any number of replacement properties if their total value at day 45 is no more than twice the value of the property you sold.

95 Percent Rule (95% Rule)

The 95% rule rescues a list that breaks both the three-property and 200% limits, but only if you buy identified property worth 95% of everything you named.

Exchange Period (180 Days)

The exchange period is the 180 days you have to receive replacement property, cut short if your return for the sale year is due first and not extended.

Identification Notice (Written Identification)

An identification notice is the signed writing that names your replacement property and must reach an eligible person by day 45, with an unambiguous description.

Identification Period (45 Days)

The identification period is the 45 calendar days after your sale closes to name replacement property in a signed writing, ending at midnight on day 45.

Incidental Property Rule (15%)

Items typically sold with a building and worth no more than 15% of it, like furniture, count as part of that property on your list. They are not like-kind.

Rev. Proc. 2018-58 Disaster Postponement of 1031 Deadlines

Rev. Proc. 2018-58 lets the IRS postpone 45-day and 180-day exchange deadlines after a federally declared disaster, by 120 days or to the relief date if later.

Substantially the Same Property

Your replacement must be substantially the same property you identified: same basic nature and character. The regulation accepts a 75% portion of raw land.

Three-Property Rule

The three-property rule lets you identify up to three replacement properties of any value within 45 days. Every unrevoked name counts, including DST interests.

Taxes and depreciation

27.5-Year vs 39-Year Property

Buildings earning 80% or more of gross rent from dwelling units are 27.5-year property; other buildings are 39-year property. Both are depreciated straight line.

Allowed or Allowable Depreciation

Allowed or allowable means basis drops by the greater of depreciation you deducted or could have deducted, so skipping depreciation raises your gain on a sale.

Carryover Basis

Carryover basis means your basis is the old basis carried in, from a donor's gift or the property you exchanged, so the untaxed gain stays with the asset.

Cash-on-Cash Return

Cash-on-cash return is one year's pre-tax cash flow divided by the cash you invested. Leverage can raise or lower it, and it ignores appreciation and timing.

Dealer Property (Held Primarily for Sale)

Dealer property is real estate held primarily for sale to customers, like spec homes or subdivided lots. Its profit is ordinary income and section 1031 excludes it.

Documentary Stamp Tax

Documentary stamp tax is a state excise on deeds, notes and mortgages, paid at recording. A 1031 exchange defers income tax but does not exempt the deed.

Equity Multiple

Equity multiple is total cash returned, plus any remaining value, divided by the equity invested. A 1.6x multiple says how much, not how fast.

Gift Tax (Real Estate Transfers)

Gift tax applies when you transfer real estate for less than full value. In 2026 the first $19,000 per recipient is excluded, and the donee takes your basis.

Holding Period in a 1031 Exchange

Section 1031 sets no minimum holding period. The replacement inherits the old property's holding period, and related-party swaps carry a two-year rule.

Internal Rate of Return (IRR)

IRR is the discount rate that sets the present value of an investment's cash flows to zero. It rewards early cash, so timing of a sale moves it sharply.

Investment Intent

Investment intent is the purpose to hold property for investment or business use that a 1031 exchange needs on both sides, judged by facts, not by what you say.

Land Improvements (15-Year Property)

Land improvements such as paving, fences and landscaping are 15-year MACRS property, eligible for bonus depreciation, with ordinary recapture of the excess on sale.

Long-Term vs Short-Term Capital Gain

Gain on property held more than one year is long-term and taxed at 0%, 15% or 20%; one year or less is short-term and taxed at ordinary rates up to 37% in 2026.

MACRS (Modified Accelerated Cost Recovery System)

MACRS is the federal depreciation system for property placed in service after 1986. Rental buildings use 27.5 or 39 years; land improvements 15; ADS runs longer.

Material Participation

Material participation is regular, continuous and substantial involvement, met through one of seven tests. It decides short-term rentals; DST income stays passive.

Net Operating Income (NOI)

Net operating income is a property's annual gross income less operating expenses, before debt service, income taxes and depreciation. It drives value and loan size.

Passive Activity Loss

A passive activity loss is the amount passive deductions exceed passive income. Rentals are passive by default; unused losses carry forward until a taxable sale.

Real Estate Professional Status

Real estate professional status lets rental losses escape the passive rules if you work 750+ hours and over half your working time in real property businesses.

Section 1231 Gain and Loss

Section 1231 gain comes from selling business or rental property held over a year. Net gains are taxed as long-term capital gain; net losses are ordinary losses.

Section 1245 Property

Section 1245 property is depreciable personal property and certain other tangible assets. Gain up to all its depreciation is ordinary income when you sell.

Section 1250 Property

Section 1250 property is depreciable real property that is not section 1245 property, chiefly buildings. Only depreciation beyond straight line is ordinary income.

State Claw-Back (Deferred Gain Tracking)

A state claw-back lets the state where you sold keep its right to tax deferred 1031 gain when the out-of-state replacement is later sold, even after you move.

State Conformity to Section 1031

State conformity is whether a state income tax follows federal section 1031, through rolling or fixed-date adoption of the Code. Pennsylvania only joined in 2023.

Straight-Line Depreciation

Straight-line depreciation deducts a building's cost evenly: 27.5 years for residential rentals, 39 for commercial, with the mid-month convention in the first year.

Unrecaptured Section 1250 Gain

Unrecaptured section 1250 gain is the part of a building's long-term gain that comes from straight-line depreciation, taxed at a maximum rate of 25% rather than 20%.

Structures and securities

Absolute Net (Bondable) Lease

An absolute net or bondable lease makes the tenant pay rent with no set-off or abatement and carry nearly every property cost, so rent services debt like a bond.

Acquisition Fee

An acquisition fee is what a sponsor charges for sourcing and buying a program's property, usually a percentage of price, paid from investor money in the offering.

Asset Management Fee

An asset management fee is a sponsor's recurring charge for overseeing a program's property, set on value, NAV or rent and sometimes paid after investors' return.

Beneficial Interest (DST)

A DST beneficial interest is your undivided share of a Delaware statutory trust. For federal tax it is treated as owning the real estate, so it can be 1031 property.

Broker-Dealer

A broker-dealer is a firm in the business of trading securities for others or itself; it must register with the SEC and join FINRA before it can sell you a DST.

Capital Call

A capital call is a fund manager's demand that investors pay in committed or extra money. Syndications use them; a DST cannot, so it funds reserves up front.

Disposition Fee

A disposition fee is what a sponsor earns when a program sells a property, usually a percentage of price, paid off the top or only after investors get a return.

Double Net (NN) Lease

A double net lease has the tenant pay rent plus property taxes and insurance while the landlord keeps costs such as the roof and structure. Here is where that bites.

Due Diligence Fee (Offering)

A due diligence fee pays or reimburses broker-dealers for investigating an offering before recommending it. It is an offering cost that reduces invested equity.

FINRA (Financial Industry Regulatory Authority)

FINRA is the self-regulatory organization that writes and enforces rules for broker-dealers under SEC oversight, including the firms that sell DST interests.

Gross Lease

A gross lease charges the tenant one rent while the landlord pays operating costs such as taxes, insurance and upkeep, so rising costs cut the owner's income.

Non-Traded REIT

A non-traded REIT is SEC-registered but not exchange-listed. Its shares are stock, not like-kind real estate, so 1031 money gets there only via a DST and 721.

Offering Load

Offering load is the upfront cost taken from your equity before a DST buys property: commissions, dealer-manager, offering, acquisition and financing fees.

Preferred Return

A preferred return is the annual return a fund agreement pays investors before the sponsor shares profit. It sets payment order, not a promise; DSTs do not use one.

Private Placement

A private placement is a securities sale exempt from SEC registration, usually under Rule 506, sold mostly to accredited investors with a PPM, not a prospectus.

Registered Investment Adviser (RIA)

A registered investment adviser is paid to advise on securities, registers with the SEC or a state, and owes clients a fiduciary duty of care and loyalty.

Regulation Best Interest (Reg BI)

Regulation Best Interest is the SEC rule that makes a broker put your interest first when recommending a security such as a DST interest, and disclose conflicts.

Regulation D

Regulation D is the SEC rule set that lets issuers sell securities unregistered under Rule 504 or 506, with a Form D notice due 15 days after the first sale.

Rule 506(b) vs Rule 506(c) (506b vs 506c)

Rule 506(b) bans advertising but allows up to 35 sophisticated non-accredited buyers; 506(c) allows advertising if every buyer is a verified accredited investor.

Sponsor Promote (Carried Interest)

A sponsor promote, or carried interest, is the sponsor's extra profit share once investors clear a hurdle, such as a preferred return plus return of capital.

Suitability

Suitability is the duty to have a reasonable basis that a recommended investment fits your profile; for DSTs it adds net worth and liquid net worth limits.

Exchange mechanics

Actual Receipt of Exchange Funds

Actual receipt means you or your agent get the sale money or its economic benefit before the replacement closes. Full receipt turns the exchange into a sale.

Assignment of Contract to the Qualified Intermediary (QI)

Assigning your sale and purchase contracts to the QI, with written notice to every party before closing, is what lets a direct deed still count as an exchange.

Constructive Receipt

Constructive receipt means money made available to you counts as received even if you never take it. In a 1031 exchange it turns the deal into a taxable sale.

Delayed (Forward or Starker) Exchange

A delayed exchange is a 1031 exchange where you sell first and receive replacement property later, identified by day 45 and received within the exchange period.

Direct Deeding

Direct deeding lets you deed the old property straight to the buyer, and the seller deed the new one to you, while the intermediary never takes title.

Disqualified Person

A disqualified person is your agent within the last two years or a related party who cannot serve as your qualified intermediary, escrow holder or titleholder.

Exchange Accommodation Titleholder (EAT)

An exchange accommodation titleholder holds title to property for you in a reverse or improvement 1031 exchange, for up to 180 days under Rev. Proc. 2000-37.

Exchange Agreement

The exchange agreement is the written contract that makes a QI qualified: it retains the QI, restricts your access to the funds and sets how earnings are handled.

Exchange-First vs Exchange-Last (Reverse Exchange Formats)

Exchange-last parks the new property with an accommodation titleholder until your sale closes; exchange-first swaps at once and parks the old property instead.

Exchanger (Taxpayer)

The exchanger is the taxpayer who gives up relinquished property and must be the same taxpayer who receives the replacement, looking through disregarded entities.

Held for Productive Use in a Trade or Business or for Investment

The 1031 use test: both properties must be held for business use or investment, not mainly for resale or as a home. Intent and actual use decide it.

Like-Kind Property

Like-kind property is real property of the same nature or character as the property you sold. Since 2018 nearly any US real estate is like kind to any other.

Multi-Asset Exchange

A multi-asset exchange swaps more than one property, so gain and basis are figured by exchange group and residual group. Since 2018 personal property is taxable.

Parking Arrangement

A parking arrangement puts title to one property with an accommodation party so you can buy the replacement before you sell. How it works and its 180-day limit.

Partial Exchange

A partial exchange defers gain on the like-kind part of a 1031 deal and taxes the cash, other property or net debt relief you receive, up to your realized gain.

Qualified Escrow Account

A qualified escrow account holds exchange cash with an independent escrow holder under written limits, so you are not treated as receiving the money early.

Qualified Exchange Accommodation Arrangement (QEAA)

A QEAA is the reverse exchange safe harbor arrangement: a titleholder, a written agreement within five business days, 45-day identification and 180 days.

Qualified Trust (Exchange Funds)

A qualified trust holds 1031 exchange cash with a trustee who is not you or a disqualified person, under (g)(6) limits, so the money is not treated as yours yet.

Real Property: The Section 1031 Definition

For a 1031 exchange, real property means land, inherently permanent structures and their components, unsevered natural products, and certain intangible interests.

Relinquished Property

Relinquished property is the real property you give up in a 1031 exchange. Its transfer date starts the 45-day and 180-day clocks, measured from the earliest sale.

Replacement Property

Replacement property is the real property you receive in a 1031 exchange. It must be identified by day 45 and be substantially the same as what you identified.

Rev. Proc. 2000-37 (Reverse Exchange Safe Harbor)

Rev. Proc. 2000-37 is the IRS safe harbor for reverse exchanges: a titleholder parks property for up to 180 days. It was narrowed by Rev. Proc. 2004-51.

Rev. Proc. 2002-22 (Tenancy-in-Common Guidelines)

Rev. Proc. 2002-22 sets the conditions for an IRS ruling that a TIC interest is not a partnership interest: 35 co-owners at most and unanimous votes on key items.

Rev. Proc. 2005-14 (Combining Section 121 and Section 1031)

Rev. Proc. 2005-14 lets a former home that is now a rental use both the home sale exclusion and a 1031 deferral, applying section 121 first, then section 1031.

Rev. Proc. 2008-16 (Vacation Home Safe Harbor)

Rev. Proc. 2008-16 lets a vacation home qualify for a 1031 if owned 24 months, rented 14+ days a year at fair rent, and personal use stays within set limits.

Rev. Rul. 2004-86 (DST Interests as Real Property)

Rev. Rul. 2004-86 holds that an interest in a properly limited Delaware statutory trust is treated as owning the real estate, so it can be 1031 replacement property.

Safe Harbor (1031 Exchanges)

A 1031 safe harbor is a set of conditions under which the IRS will not challenge one point of an exchange: receipt of funds, reverse parking or a vacation home.

Section 1031(f) Related-Party Rules

Section 1031(f) withdraws deferral when related parties swap property and either disposes of it within two years, and bars deals built to get around that rule.

Section 1031(h) (US and Foreign Property Are Not Like-Kind)

Section 1031(h) makes US and foreign real property unlike in kind. What counts as the United States, how foreign-for-foreign works, and the USVI and Guam rule.

Simultaneous Exchange

A simultaneous exchange is a 1031 where old and new properties transfer at the same time, by direct swap, a three-party deal or through a qualified intermediary.

The G6 Limitations: Reg. (g)(6) Rules on Exchange Funds

The (g)(6) limitations are the exchange agreement terms that bar you from touching sale proceeds until set release points: day 45, full receipt or day 180.

Money and boot

Amount Realized

Amount realized is the cash and property you receive plus debt you are relieved of, less selling costs. Subtract adjusted basis and the result is your realized gain.

Cash Boot

Cash boot is money or non-like-kind property you receive in a 1031 exchange. It makes gain taxable up to its amount, and new debt on the replacement cannot cure it.

Deferred Gain

Deferred gain is realized gain a 1031 exchange does not tax now. It rides in the replacement's lower basis, shows on Form 8824 line 24, and is reset at death.

Equity (Net Equity to Reinvest)

Equity in a 1031 exchange is sale proceeds after the loan payoff and exchange costs. Reinvest all of it and replace the debt, or add cash, to defer all gain.

Exchange Expenses (Transactional Costs)

Exchange expenses are closing costs such as commissions and attorney or deed fees. They cut the amount realized and boot; prorations, deposits and repairs do not.

Exchanged Basis and Excess Basis

Exchanged basis is the carried-over part of a replacement's basis; excess basis is new basis above it. Each gets its own depreciation schedule unless you elect out.

Liabilities Assumed or Taken Subject To

Debt the other party takes over or takes subject to counts as money you received in a 1031 exchange. Debt you take on with the replacement offsets it; cash does not.

Mortgage Boot (Debt Relief)

Mortgage boot is debt relief left over after netting: loans paid off or assumed on the sale, minus new debt and cash added on the replacement. It is taxed like cash.

Net Boot

Net boot is cash and other boot received, plus net debt relief, less exchange expenses. It sits on Form 8824 line 15 and caps the gain taxed in a 1031 exchange.

Prorations (Rent, Taxes, Deposits) in an Exchange

Prorations split rent and property taxes between seller and buyer at closing. The 1031 regulations disregard prorated rent and taxes; tenant deposits need care.

Realized Gain vs Recognized Gain

Realized gain is the economic gain on a sale or exchange; recognized gain is the part taxed this year. In a 1031 exchange it is capped at the boot received.

Real estate finance

Assumable Loan

An assumable loan lets a buyer take over the seller's mortgage with lender consent. In a 1031 it is debt relief for the seller and new debt for the buyer.

Balloon Payment

A balloon payment is the lump sum due when a loan that does not fully amortize matures. Its date sets the deadline to sell or refinance, including for a DST.

CAM Charges (Common Area Maintenance)

CAM charges pass a building's shared operating costs to tenants. Refunds owed at sale can shrink the cash reaching your intermediary unless you fund them.

Class A, B and C Property

Class A, B and C grade income property by age, quality and location. For a 1031 exchange the grade is irrelevant: like-kind turns on nature, not grade or quality.

Core, Core-Plus, Value-Add and Opportunistic

Core, core-plus, value-add and opportunistic sort real estate by how much the plan depends on changing the property. DSTs sit at the core end.

Defeasance

Defeasance releases a securitized loan's lien by pledging government securities that pay the remaining loan payments. It sets payoff cost and timing on a sale.

Escrow Holdback

An escrow holdback keeps part of the price back until a repair or claim is resolved. Released to your intermediary in time it buys property; to you, it is boot.

Estoppel Certificate

An estoppel certificate is a tenant's signed confirmation of its lease, rent and any landlord default. Late estoppels can push a closing past day 180.

FIRPTA Affidavit (Non-Foreign Certification)

A FIRPTA affidavit is the seller's sworn statement that it is not a foreign person, which excuses the buyer from withholding 15% of the amount realized.

Form W-9 at Closing

At closing the settlement agent asks for a signed W-9 to report the sale on Form 1099-S. A single-member LLC's W-9 carries the owner's name and number.

Interest-Only Loan

An interest-only loan's payments cover interest but no principal, so the balance stays flat. That lifts cash flow now and leaves the full balance due later.

Loan-to-Value (LTV)

Loan-to-value is the loan divided by the property's market value. In a 1031 it shows whether the replacement carries enough debt to match the loan you retire.

Non-Recourse Debt

Non-recourse debt lets the lender look only to the property, not to you. For tax it counts in full: on a sale or foreclosure the whole balance is amount realized.

Rent Roll

A rent roll lists every unit, tenant, rent, lease term and balance at a property on one date. Test it against leases and collections before you identify.

SNDA (Subordination, Non-Disturbance and Attornment)

An SNDA puts a lease behind the mortgage, protects the tenant after foreclosure and binds it to the new owner. Lenders on net lease buys require it.

Stabilized Property

A stabilized property has finished lease-up and runs at normal market occupancy, so its income can be measured. DSTs and most lenders buy on that basis.

Trailing Twelve Months (T-12)

A T-12 reports a property's actual income and expenses for the latest twelve months. It is the quickest test of a replacement property's real income.

Yield Maintenance

Yield maintenance is a prepayment premium paying a lender the interest it loses on early repayment, measured against Treasury yields over the remaining term.

Documents and forms

California Form FTB 3840 (Like-Kind Exchange Tracking)

Form FTB 3840 is the California information return due for the year you swap California property for out-of-state property and each year until the gain is taxed.

Exchange Cooperation Clause

An exchange cooperation clause is contract wording in which the other party agrees to cooperate with your 1031 exchange at no cost, delay or liability to them.

Form 3115 (Change in Accounting Method)

Form 3115 changes an accounting method; for landlords it claims missed depreciation in one year through a section 481(a) adjustment, often before a sale.

Form 8288-B (FIRPTA Withholding Certificate)

Form 8288-B asks the IRS to reduce or eliminate the 15% FIRPTA withholding when a foreign person sells US real estate, including as part of a 1031 exchange.

Form 8594 (Asset Acquisition Statement)

Form 8594 reports how the price of a business sale is split across seven asset classes; when the real estate is exchanged, it covers only the non-1031 part.

Form 8949 and Schedule D for Real Estate Sales

Form 8949 lists sales of capital assets such as investment land; rental and business property starts on Form 4797, and both feed Schedule D as capital gain.

Form 8997 (Opportunity Fund Investment Statement)

Form 8997 is the yearly statement every investor holding a qualified opportunity fund interest attaches to the return to track deferred gain in, held and out.

Grantor Letter (DST Tax Reporting)

A grantor letter is the DST trustee's yearly statement of your share of rent, expenses and other tax items, which you report on your own return instead of a K-1.

Notice of Assignment

A notice of assignment tells every party to your sale or purchase contract, in writing and by closing, that your contract rights now belong to your intermediary.

QI Year-End Statement

A QI year-end statement sums up your exchange account: money in and out, fees, interest earned and key dates, which your CPA needs for Form 8824 and your income.

Entities and parties

Community Property

Community property is property spouses own equally under the law of nine states. At the first death both halves can get a new basis, which changes 1031 math.

Disregarded Entity

A disregarded entity is a single-owner entity the IRS treats as part of its owner, so an LLC and its owner count as one taxpayer on both sides of a 1031 exchange.

Facilitator or Accommodator

Facilitator and accommodator are trade names for the qualified intermediary that holds your exchange funds. California and Washington regulate them by statute.

Grantor Trust

A grantor trust is a trust whose income and assets are taxed to the person treated as its owner. That is why revocable trusts and DST interests can sit in a 1031.

Joint Tenancy With Right of Survivorship

In joint tenancy each owner holds an undivided share that passes to the survivors at death. For a 1031, each joint tenant is a separate taxpayer.

Nominee or Titleholder

A nominee holds bare legal title for someone else, who stays the owner for tax. In a 1031 the beneficial owner, not the name on the deed, is the exchanger.

Partnership Interest Exclusion

An interest in a partnership or multi-member LLC is not real property for section 1031, so it cannot be exchanged, unless the entity has a valid 761(a) election.

Revocable Living Trust (in a 1031 Exchange)

A revocable living trust is disregarded for income tax, so you can sell in your own name and buy in the trust's name, or the reverse, without failing the 1031.

Settlement Agent (Closer, Escrow Officer, Closing Attorney)

The settlement agent runs the closing, prepares the statement and files Form 1099-S. In a 1031 it must send your proceeds to the intermediary, never to you.

Swap and Drop

A swap and drop is an exchange by a partnership or LLC followed by distribution of the replacement property to its owners. The risk sits in the holding requirement.

Tenancy by the Entirety

Tenancy by the entirety is joint ownership reserved for spouses in some states. It does not change the 1031 result, and half the value gets a basis step-up at death.

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