In our previous post, we discussed some basic terms associated with 1031 exchange. Here we present another set of terms that will help you conduct the process easily.
These terms include:
Boot: It is a non like-kind property that may be received during the exchange.
Actual Receipt: It is referred as the physical possession of proceeds.
Capital gain tax: For the investments that are held by an individual for a year or more, the state and federal government levy a tax known as a capital gain tax. These investments include stocks, bonds, collectibles, and real estate.
Depreciation: The regular wearing away of the property over the economic life of the property is known as depreciation.
Exchange Agreement: A formal agreement between the exchanger and qualified intermediary that sets forth the intent of the exchanger to exchange relinquished property with replacement property. The agreement also includes terms and conditions, along with the every party involved in the transaction.
Identification period: The period of 45 days given from the closing the relinquished property given for identifying potential replacement property.
Capital gain/loss: The difference between the selling price of a property, along with the adjusted costs.
Closing costs: The amount paid during the closing for the replacement or relinquished properties.
Tax-deferral: the delay of taxes to a later year, by recognizing gain or income during a later period. 1031 real estate exchange is one of the popular methods of deferring the taxes.