1031 Glossary

  • 45 day rule
    45 day Identification period (the 45 day rule) The exchanger must identify all potential replacement property within the first 45 days of the 180 day exchange period.
  • 180 Day
    The Exchanger must identify the potential replacement property (ies) within the first 45 days of the 180 day Exchange Period.
  • 200% Rule
    (One of three replacement property identification rules) The Exchanger may identify more than three properties, but the total fair market value of what is identified cannot exceed 200% of the fair market value of the relinquished property.
  • Accommodator
    Qualified Intermediary (Accommodator, Facilitator) prepares the necessary documentation, holds and protects the exchange proceeds and oversees each closing.
  • Accredited Investor
    An accredited investor is an individual or a business entity that is allowed to trade securities that may not be registered with financial authorities. They are entitled to this privileged access by satisfying at least one requirement regarding their income, net worth and asset size. Accredited investors are deemed financially sophisticated enough to bear the risks. For an individual to be accredited, the person must have a net worth of $1,000,000 excluding the value of his primary residence. For other entities, the net worth threshold varies.
  • B-D
    A broker-dealer (B-D) is a person or firm in the business of buying and selling securities for its own account or on behalf of its customers. There are thousands of broker-dealers comprising two broad categories: a wirehouse, which sells its own products, or an independent broker-dealer, which sells products from outside sources. With 1031’s some Sponsors are their own Broker/Dealer and others have Broke/Dealers approve their offerings.
  • Broker
    A broker-dealer (B-D) is a person or firm in the business of buying and selling securities for its own account or on behalf of its customers. There are thousands of broker-dealers comprising two broad categories: a wirehouse, which sells its own products, or an independent broker-dealer, which sells products from outside sources. With 1031’s some Sponsors are their own Broker/Dealer and others have Broke/Dealers approve their offerings.
  • broker-dealer
    A broker-dealer (B-D) is a person or firm in the business of buying and selling securities for its own account or on behalf of its customers. There are thousands of broker-dealers comprising two broad categories: a wirehouse, which sells its own products, or an independent broker-dealer, which sells products from outside sources. With 1031’s some Sponsors are their own Broker/Dealer and others have Broke/Dealers approve their offerings.
  • Broker/Dealer
    The Sponsor (or the Manager and sometimes the Broker/Dealer) is an entity that offers to Exchange a DST interest in real property to complete their exchange. The Sponsor has either placed the property under contract, built it or purchased it for an exchange. If a purchase, before committing to the purchase the Sponsor analyzes leases, ascertains structural soundness, assesses deferred maintenance and conducts in depth studies of market trends, demographics and tenant needs to determine whether or not the property is a desirable investment purchase. The Sponsor secures non-recourse financing, prepares a Private Placement Memorandum and after acquisition manages the property.
  • Dealer
    A broker-dealer (B-D) is a person or firm in the business of buying and selling securities for its own account or on behalf of its customers. There are thousands of broker-dealers comprising two broad categories: a wirehouse, which sells its own products, or an independent broker-dealer, which sells products from outside sources. With 1031’s some Sponsors are their own Broker/Dealer and others have Broke/Dealers approve their offerings.
  • Delaware Statutory Trust
    Delaware Statutory Trust (DST) A Delaware Statutory Trust is a separate legal entity created as a trust under Delaware statutory law. (DST) 1031 exchange is a purchase by an investor of beneficial interests in the Trust. Where the investor receives a Certificate of Beneficial Interests. Bankruptcy creditors of the beneficiaries cannot reach the DST’s property. The Trustees have powers with respect to the real estate operations and the holders of the beneficial interests have no powers. Each PPM contains a legal opinion discussing the structure and its compliance with IRS Revenue Proclamation 2004-86 which dictates the requirements necessary to satisfy IRS’s ruling.
  • DST
    Delaware Statutory Trust (DST) A Delaware Statutory Trust is a separate legal entity created as a trust under Delaware statutory law. (DST) 1031 exchange is a purchase by an investor of beneficial interests in the Trust. Where the investor receives a Certificate of Beneficial Interests. Bankruptcy creditors of the beneficiaries cannot reach the DST’s property. The Trustees have powers with respect to the real estate operations and the holders of the beneficial interests have no powers. Each PPM contains a legal opinion discussing the structure and its compliance with IRS Revenue Proclamation 2004-86 which dictates the requirements necessary to satisfy IRS’s ruling.
  • Facilitator
    Qualified Intermediary (Accommodator, Facilitator) prepares the necessary documentation, holds and protects the exchange proceeds and oversees each closing.
  • IRC SECTION 1031
    Section 1031 of the Internal Revenue Code allows an owner of investment property to exchange property and defer paying federal and state capital gain taxes (15-20%+ applicable state taxes) and taxes on gain from depreciation (25%) and the Obama Care tax (3.8%) when required if they purchase a “like-kind” property following the rules and regulations of the Internal Revenue Code. This allows investors to use all of their proceeds from their sale to leverage into more valuable real estate, potentially increase cash flow, diversify into other properties, reduce management or consolidate into one property.
  • Manager
    The Sponsor (or the Manager and sometimes the Broker/Dealer) is an entity that offers to Exchange a DST interest in real property to complete their exchange. The Sponsor has either placed the property under contract, built it or purchased it for an exchange. If a purchase, before committing to the purchase the Sponsor analyzes leases, ascertains structural soundness, assesses deferred maintenance and conducts in depth studies of market trends, demographics and tenant needs to determine whether or not the property is a desirable investment purchase. The Sponsor secures non-recourse financing, prepares a Private Placement Memorandum and after acquisition manages the property.
  • Non-recourse leverage
    A loan where the note holder can only look to the property for security if his note is not paid. Non-recourse does not protect the payer of the note from fraud.
  • PPM
    Private Placement Memorandum (PPM) Private Placements are exempt from registration under the Securities Act of 1933 and most are offered under Regulation D. The offering memorandum for a property includes disclosures of information obtained from the issuer including the nature, character, and risk factors relating to the offering. It is prepared by legal counsel from information provided by the issuer.
  • Private Placement Memorandum
    Private Placement Memorandum (PPM) Private Placements are exempt from registration under the Securities Act of 1933 and most are offered under Regulation D. The offering memorandum for a property includes disclosures of information obtained from the issuer including the nature, character, and risk factors relating to the offering. It is prepared by legal counsel from information provided by the issuer.
  • Qualified Intermediary
    Qualified Intermediary (Accommodator, Facilitator) prepares the necessary documentation, holds and protects the exchange proceeds and oversees each closing.
  • Risks
    Clients should keep in mind the following possible risks: Potential for property value loss. Possible change in tax status. Potential for lack of disclosure. Illiquidity. Potential reduction or elimination of monthly cash flow distributions. Adverse impact of fees and expenses. Loss of management control.
  • Sponsor
    The Sponsor (or the Manager and sometimes the Broker/Dealer) is an entity that offers to Exchange a DST interest in real property to complete their exchange. The Sponsor has either placed the property under contract, built it or purchased it for an exchange. If a purchase, before committing to the purchase the Sponsor analyzes leases, ascertains structural soundness, assesses deferred maintenance and conducts in depth studies of market trends, demographics and tenant needs to determine whether or not the property is a desirable investment purchase. The Sponsor secures non-recourse financing, prepares a Private Placement Memorandum and after acquisition manages the property.
  • Tenant in Common
    A Tenant in Common 1031 exchange is a purchase by an investor of an undivided fractional interest in real property to complete his exchange. The investor receives at settlement an individual deed stating his undivided percentage ownership in the property. He has the same rights as he would as a sole owner. IRS Revenue Proclamation 2002-22 dictates the requirements necessary to satisfy the ruling.
  • Three Property Rule
    The Exchanger may identify up to three properties of any value.
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