1031 Exchange Terms you
Need to Know

Installment Method

A tax method used to recognize capital gains over time when property is sold with payments received in installments.

Installment Sale

A method of selling property where the seller receives payment over a period of time rather than in a lump sum, potentially used in combination with 1031 Exchanges.

Investment Intent

The intention to hold property for the purpose of generating rental income or for the potential for appreciation, satisfying the qualified use requirement.

Like-Kind Exchange Agreement

A formal written agreement between the exchanger and the qualified intermediary outlining the terms and responsibilities of the exchange.

Like-Kind Property

Real property that is similar in nature or character, regardless of differences in grade, quality, or location. This is a key requirement for properties involved in a 1031 Exchange.

Mixed-Use Property

A property that serves both residential and commercial purposes, which can be eligible for a 1031 Exchange if certain criteria are met.

Mortgage Boot

A form of taxable boot that arises when a mortgage on the relinquished property is paid off in part or in full.

Nonrecognition of Gain

The tax treatment of capital gains in a 1031 Exchange, where the gain is not recognized or realized until a future taxable event occurs.

Appraisal

An evaluation of a property's value, often performed to determine the fair market value for tax purposes in a 1031 Exchange.

Non-Recourse Debt

A type of debt in which the lender's only recourse in case of default is to seize the collateral property. It is often used in 1031 Exchanges to avoid triggering taxable boot.

Notary Public

A public official authorized to authenticate and certify documents, often required in the exchange process.

Partial Exchange

A 1031 Exchange where the value of the replacement property is less than the net sale price of the relinquished property, resulting in potential partial taxation.