If the exchange lingo sounds like a foreign language to you, don’t despair.  Here’s a short glossary of terms you need to know to travel safely in the world of exchanges.


Basis – The book value allocated to property being sold by the taxpayer.  A simple calculation of basis is the amount paid for the property, plus any improvements, less any depreciation.

Boot – Any cash or non-qualifying property received by the taxpayer in an exchange.  Any debt relieved at the sale of the relinquished property that is not replaced in full on the replacement property, either by new debt or by cash brought from an outside source unrelated to the exchange, will be considered boot and taxable to the extent of the capital gain inherent for the entire transaction.  Any other non-qualifying property, such as a promissory note, that is not fully reinvested in the replacement property, will be taxable to the same extent.

Code – The Internal Revenue Code of 1986, as amended.

Constructive Receipt – Having indirect possession or control of the proceeds from the sale of relinquished property, or receiving the economic benefit from such proceeds or assets prior to the end of the exchange period.  A taxpayer’s constructive receipt of the proceeds leads to the same result as the actual receipt of the proceeds by a taxpayer; the loss of any possibility for the taxpayer to utilize Section 1031 to defer tax in an exchange.

Exchange Period – The time period within which the taxpayer must acquire replacement property in an exchange.  The exchange period begins on the date of transfer of the relinquished property.  In an exchange involving multiple relinquished properties the period begins on the transfer of the first property.  The exchange period ends on the earlier of (a) 180 days after the transfer date of the first relinquished property, or (b) the due date of the taxpayer’s tax return, including validly filed extensions.

Identification Period – The time period in which the taxpayer must identify replacement property in an exchange.  The identification period is 45 calendar days in length, begins on the date of transfer of the relinquished property, ends at midnight of the 45th day thereafter, and runs concurrently with the exchange period.

Like-Kind Property – “Like-kind” refers to the nature or character of property, and not to its grade or quality.  Under Section 1031, all real property is generally of a like-kind to all other real property.  The definition of like-kind for personal property exchanges is much more limited, requiring a review of individual asset classes.

Proceeds – The cash or other property received from the sale of relinquished property in the exchange.

Qualified Intermediary – The facilitator of the IRC §1031 tax-deferred exchange.  The qualified Intermediary acts throughout the transaction on behalf of the taxpayer pursuant to Section 1.1031(k)-1(g)(6) of the Regulations.  Also referred to as “Accommodator” or a “QI”.

Regulations – The rules and requirements for conducting a tax-deferred exchange as promulgated by the Treasury Department and published at 26 C.F.R. §§1.1031-0 et. seq.  See Addendum B.

Relinquished Property – The property or properties sold by the taxpayer in an exchange.

Replacement Property – The property or properties acquired by the taxpayer in an exchange.  May also be called the “acquisition property”.

Tax-Deferred Exchange – Section 1031 of the Code provides for the exchange of property held for: (i) business use; or (ii) investment solely for property of a like-kind without recognizing income on the exchange.

Taxpayer – The owner of property utilizing an IRC §1031 tax-deferred exchange to defer the capital gains tax consequence on the sale of their investment property.  Also called an “Exchangor”.

Value Requirement – The amount that a taxpayer must reinvest into replacement property to completely defer the income tax on a transaction.  The calculation of this amount includes all cash received as well as any debt relieved from the transfer of the relinquished property.