Reference
The language of tax-deferred real estate.
Plain-English definitions of the terms you'll encounter in a 1031 exchange, a DST, or an UPREIT, no jargon left unexplained.
- 1031 Exchange
- A transaction under IRC Section 1031 that defers capital gains tax by reinvesting proceeds from the sale of investment property into like-kind replacement property of equal or greater value.
- 45-Day Rule
- The window — 45 calendar days from the sale closing — within which an investor must formally identify potential replacement properties in writing.
- 180-Day Rule
- The deadline by which the replacement property must be acquired, 180 calendar days from the sale closing, running concurrently with the 45-day window.
- Like-Kind Property
- Real property held for investment or business use that may be exchanged for other such property. For real estate, this is interpreted broadly across property types.
- Boot
- Any non-like-kind value received in an exchange — typically leftover cash or a reduction in debt. Boot is taxable, even within an otherwise valid exchange.
- Qualified Intermediary (QI)
- An independent third party that holds the exchange proceeds between transactions and facilitates the exchange, preventing the investor from taking "constructive receipt" of funds.
- Constructive Receipt
- Having access to or control over sale proceeds. Taking constructive receipt — even briefly — can disqualify a 1031 exchange.
- Adjusted Basis
- The original purchase price plus capital improvements, minus depreciation taken. Your taxable gain is generally the net sale price minus the adjusted basis.
- Depreciation Recapture
- Tax of up to 25% on the depreciation previously deducted, triggered at sale. A 1031 exchange defers recapture along with capital gains tax.
- Delaware Statutory Trust (DST)
- A legal entity holding title to income-producing real estate in which investors hold beneficial interests that qualify as 1031 replacement property — completely passive ownership.
- 721 Exchange (UPREIT)
- The contribution of property or a DST interest to a REIT's operating partnership in exchange for operating partnership (OP) units, on a tax-deferred basis.
- Operating Partnership (OP) Units
- Units in a REIT's operating partnership received in a 721 exchange; they may be convertible to REIT shares over time, generally a taxable event.
- Qualified Opportunity Zone (QOZ)
- A designated distressed community where qualifying investment through a Qualified Opportunity Fund can receive preferential capital gains tax treatment.
- Accredited Investor
- An investor meeting SEC thresholds — net worth over $1M excluding primary residence, or income over $200K ($300K jointly) — eligible for private placements.
- Net Investment Income Tax (NIIT)
- An additional 3.8% tax that may apply to investment income, including capital gains, for higher-income taxpayers.
- FIRPTA
- The Foreign Investment in Real Property Tax Act, which requires tax withholding when a foreign person disposes of a U.S. real property interest.
- Private Placement Memorandum (PPM)
- The detailed offering document for a private investment such as a DST, disclosing strategy, fees, and risks. Investors should read it carefully before investing.
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