1. REINVEST ALL EXCHANGE PROCEEDS - If an Exchanger does not reinvest all exchange proceeds from the sale of the relinquished property, the balance received is considered "cash boot," and gain may be recognized on that amount.

2. ACQUIRE PROPERTY WITH THE SAME OR GREATER DEBT - If an Exchanger does not acquire a replacement property with an equal or greater amount of debt, he or she is relieved of a debt obligation, which is considered "mortgage boot." The IRS considers this reduction in debt a benefit to the Exchanger; therefore, it is taxable, unless it is offset by adding equivalent cash to the replacement property purchase.

1031 exchange Internal Revenue Code Section 1031 states that no gain or loss is recognized where property held for investment or productive use in a trade or business is exchanged solely for property of like-kind which is to be held for investment or productive use in a trade of business.

1031 TIC Exchange (Tenants in common 1031 Exchange) is a form of real estate asset ownership in which two or more persons have an undivided, fractional interest in the asset, where ownership shares are not required to be equal, and where ownership interests can be inherited. Each co-owner receives an individual deed at closing for his or her undivided percentage interest in the entire property. In brief, a TIC owner has the same rights and benefits as a single owner of property.

3 (Three) Property Rule The Exchanger may identify up to 3 properties, without regard to their value.

45 Day Identification Rules The guidelines that must be followed when making a 1031 tax deferred exchange, such as the 3 Property Rule, 200% Percent Rule, and 95% Percent Rule.

Absorption Rate: The net change in space available for lease between two dates, typically expressed as a percentage of the total square footage.

Accredited Investor (Individual): a natural person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase; a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year.

Boot Fair Market Value of non-qualified (not “like-kind”) property received in an exchange. (Examples: cash, notes, seller financing, furniture, supplies, reduction in debt obligations.) Receipt of boot will not disqualify an exchange, but the boot will be taxed to the Exchanger to the extent of the recognized gain.
capital expenditure.

Capitalization Rate: The rate that converts income into a value which provides a reasonable return on investment (on the basis of both the investor's alternative investment possibilities and the risk of the investment). Used to determine and value real property through the capitalization process. Also called "free and clear return."

Cash on Cash Return: The ratio of annual equity income to the equity investment; also called equity capitalization rate, cash flow rate, or equity dividend rate.

A condo-hotel or a hotel-condo is a building used as both a condominium and a hotel. This type of residential building meets several needs that make it attractive. As development costs increase, the cost of hotel development can make developing new hotels difficult, especially in major cities. By selling the units as condos, the developer moves much of the development cost to the condo owners. By owning units that can be rented as hotel rooms, the owners are able to get a return on their investment allowing them the ability to own a residence in a resort or major city.

Constructive Receipt: A term referring to the control of proceeds by an Exchanger in a 1031 exchange even though funds may not be directly in their possession.

Deed A legal instrument transferring title to real property from the seller to the buyer upon the sale of such property.

Deferred Exchange refers to an exchange of one property for another of "like kind". The capital gain tax owed on the sale of the property or item is deferred until sale of the exchange property.

DST The Delaware Statutory Trust, or DST, is a separate legal entity created as a trust under Delaware statutory law. The law permits a very flexible approach to the design and operation of these entities. The IRS issued a revenue ruling on July 20, 2004 regarding the use of DST's for purchase of fractional interests in real property in conjunction with a §1031 exchange

Escrow is an agreement between two or more parties, requiring that certain instruments, monies, or property be placed with a third party for safekeeping, pending the fulfillment of performance of a specified act or condition.

Exchange Period The period during which you must acquire the replacement property, beginning on the day on which you transfer your relinquished property and ending at midnight on the 180th day after that.

First Refusal Right or Right Of First Refusal (Purchase): A lease clause giving a tenant the first opportunity to buy a property at the same price and on the same terms and conditions as those contained in a third party offer that the owner has expressed a willingness to accept.

Gross Lease: A lease in which the tenant pays a flat sum for rent out of which the landlord must pay all expenses such as taxes, insurance, maintenance, utilities, etc.

Identification Period is the 45-day period during which you must identify replacement property that begins on the day escrow is closed on the relinquished property.

In-Cash refers to the point in time when an investor has closed escrow on the relinquished property and is in the 45-day identification period of the 1031 exchange process. The money from the sale of the relinquished property is with a Qualified Intermediary, waiting to be reinvested into the replacement property.

Limited Partnership is a form of partnership in which there is one or more general partners, jointly and severally responsible as ordinary partners with liability, and one or more special partners, who are not liable for the debts of the partnership beyond the amount of cash they contribute/invest as capital.

Qualified Intermediary The entity that facilitates the exchange for the Exchanger. Although the Treasury Regulations use the term “Qualified Intermediary,” some companies use the term “facilitator” or “accommodator”.

A Real Estate Investment Trust or REIT is a tax designation for a corporation investing in real estate that reduces or eliminates corporate income taxes. In return, REITs are required to distribute 90% of their income, which may be taxable in the hands of the investors. The REIT structure was designed to provide a similar structure for investment in real estate as mutual funds provide for investment in stocks. Like other corporations, REITs can be publicly or privately held. Public REITs may be listed on public stock exchanges like shares of common stock in other firms.

Real estate investing or Income Property involves the purchase of real estate for profit. Profits are accumulated slowly by renting out properties in a cash flow method, or are generally improved and resold for a capital gain. In addition, real estate investors may wholesale properties as a means to make profits.

Real estate or immovable property is a legal term (in some jurisdictions) that encompasses land along with anything permanently affixed to the land, such as buildings. Real estate (immovable property) is often considered synonymous with real property (also sometimes called realty), in contrast with personal property (also sometimes called chattel or personality). However, for technical purposes, some people prefer to distinguish real estate, referring to the land and fixtures themselves, from real property, referring to ownership rights over real estate.

Real Estate Provider is a real estate company that focuses on acquisition of institutional-grade investment property for the purposes of offering Tenants In Common investment opportunities.

Section 1031 of the IRS code is the authorizing section of the IRS tax code that allows an investment property owner to defer capital gains and depreciation recapture taxes on a property sold.

Security ". . . any note, stock, treasury stock, security future, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral trust certificate, pre-organization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights . . . or, in general, any interest or instrument commonly known as a 'security,' or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing."

Tax Basis or Basis The tax basis in a property is equal to cost minus accumulated depreciation. When exchanging, the beginning basis is equal to the tax basis in the relinquished property, increased by any new cash (including any increase in non-recourse debt) that is paid in the acquisition of the replacement property. Tax basis is depleted through annual depreciation and increased by Taxpayer is the person conducting the 1031 exchange.

Tenancy In Common or TIC “A form of vesting title to property owned by any two or more individuals in undivided fractional interests. These fractional interests may be unequal in quantity or duration and may arise at different times. Each tenant in common owns a share of the property, is entitled to a comparable portion of the income from the property and must bear equivalent share of expenses. Each co-tenant may sell, lease or will his/her heir that share of the property belonging to him/her.”

Triple Net (NNN) Rent: A lease in which the tenant pays, in addition to rent, certain costs associated with a leased property, which may include property taxes, insurance premiums, repairs, utilities, and maintenances. There are also “Net Leases" and “NN” (double net) leases, depending upon the degree to which the tenant is responsible for operating costs.