1031 Exchange Terms you
Need to Know

Deed of Trust

A legal document that secures a loan by using the property as collateral. It is typically recorded in public records.

Delayed Exchange

A type of 1031 Exchange in which the replacement property is acquired after the sale of the relinquished property.

Delayed Settlement

A situation in which the sale of the relinquished property occurs before the actual closing date, with the buyer taking possession and ownership at a later date.

Depreciation Recapture

The recapture of previously claimed depreciation deductions when selling a property, potentially increasing the taxable gain.

Disqualified Person

Individuals or entities that are prohibited from acting as intermediaries or having certain relationships with the exchanger to maintain the integrity of the 1031 Exchange.

Down-Reversion Exchange

A 1031 Exchange strategy where the exchanger sells a larger property and acquires a smaller one, possibly generating tax-deferred cash.

Drop and Swap

A strategy used in partnership scenarios, where partnership interests are dropped into the ownership of the partners, followed by a swap of those interests to complete a 1031 Exchange.

Due Diligence

The process of researching and assessing the potential risks and benefits of a real estate investment, including evaluating replacement properties in a 1031 Exchange.

Exchange Agreement

The legal contract that formalizes the 1031 Exchange and designates the qualified intermediary's role.

Exchange Costs

Expenses related to the 1031 Exchange, including intermediary fees, legal fees, and other transaction costs.

Acquisition Debt

Debt used to acquire, construct, or substantially improve a property, which can affect the amount of tax-deferred gains in an exchange.

Exchange Period

A 180-day period during which the exchanger must complete the acquisition of the replacement property, starting from the sale of the relinquished property.