Term Glossary

45-Day Identification

An exchanger has 45 calendar days from the closing sale date of their property to formally identify a replacement property or properties, under IRC Revenue Code section 1031

An exchanger has 180 calendar days from the closing date of the property for sale to close on the exchanged or replacement property, under IRC Revenue Code section 1031

Also known as a Like-Kind Exchange, transfers that are governed by the IRS, and exchange real estate, or other assets, to acquire a new similar property, or other asset, for the purpose of deferring multiple taxes

Taxes deferred include capital gains, depreciation recapture, federal, state, and local

Individuals that has a high level of professional finance knowledge, experience, or certifications and pass specific income requirements

Income requirements are currently a $1 million net worth excluding primary residence, or an annual income of $200,000 or $300,000 for a spousal couple

Tax liability generated from violating IRS 1031 exchange guidelines in which investors must pay capital gains, depreciation recapture, federal, state, and local taxes at the time of the property’s sale

An increase in value of an asset that generates a tax when the asset is sold on the gain above the cost basis

A legal entity set under Delaware statutory law allowing investors to partake in a pro rata interest in the assets the trust holds selected by a sponsor

Tax that has been deferred due to a depreciating asset realized on one’s income. Once the asset is sold, one might be subject to pay the taxes written off by depreciation from the sold asset

Regarding real estate, an investment time horizon governed by the sponsor from the open investment period to the exit

While no technical definition exists, generally they are properties that are of large enough size to incentivize attention from sizeable investor groups

Properties that are the same nature or character, but can differ in quality or grade

Investor’s proportional, capital interest in the real estate vehicle or DST which directly owns the assets

A real estate company that coordinates the searching, acquiring, and managing of a property/properties

A legal arrangement where 2 or more investors own ownership in real estate where investors can own different percentages of the property

Owners can transfer ownership of the property to anyone upon death

Zero-coupon structures are investment structures that do not make any passive disbursements during the investment period and returns a realized gain at the maturity date

Generally, in the case of DSTs, the investment term is 10 years

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1031 Risk Disclosure:

  • There is no guarantee that any strategy will be successful or achieve investment objectives;
  • Potential for property value loss – All real estate investments have the potential to lose value during the life of the investments;
  • Change of tax status – The income stream and depreciation schedule for any investment property may affect the property owner’s income bracket and/or tax status. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities;
  • Potential for foreclosure – All financed real estate investments have potential for foreclosure;

  • Liquidity – Because 1031 exchanges are commonly offered through private placement offerings and are illiquid securities. There is no secondary market for these investments.

  • Reduction or Elimination of Monthly Cash Flow Distributions – Like any investment in real estate, if a property unexpectedly loses tenants or sustains substantial damage, there is potential for suspension of cash flow distributions;
  • Impact of fees/expenses – Costs associated with the transaction may impact investors’ returns and may outweigh the tax benefits