Real Estate Investment Terminology

Calculator Resource Links FAQsKey TermsIRS Code 1031 Exchange

Here you’ll find definitions for important terms used throughout the real estate investment process. If you don’t find what you’re looking for, please contact us: an INVERNESS Real Estate Investment Consultant will be happy to help.

Exchange Period: the period during which an individual conducting a 1031 exchange must acquire the replacement property, beginning on the day on which the relinquished property is transferred and ending at midnight on the 180th day after that.

Identification Period: the 45-day period during which an individual conducting a 1031 exchange must identify replacement property that begins on the day escrow is closed on the relinquished property.

In-Cash: the point in time when an investor has closed escrow on the relinquished property and the money from the sale of the relinquished property is held by a Qualified Intermediary waiting to be reinvested into the replacement property.

Like-kind property: any two properties that are held for investment, making an exchange between them potentially tax-free.

Limited Partnership: 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 as capital.

Liquidity or liquid: the ability to quickly convert an asset to cash.

Property or properties: legally owned real estate or possessions.

Pro-rata: a proportionate allocation of ownership, mortgage obligation and cash flow based on the fractional percentage of ownership in an investment property.

Qualified Intermediary: the disinterested third party that holds the funds from the relinquished property and releases the funds for the replacement property, and ensures that all IRS 1031 tax code requirements are met.

Real Estate Investment Consultant: a professional investment consultant, experienced in identifying suitable replacement property for investors seeking to complete a 1031 exchange, as well as making other real estate investment recommendations.

Real Estate Provider: a real estate company that focuses on acquisition of institutional-grade investment property for the purposes of offering Tenants In Common investment opportunities to suit an investor’s portfolio and investment goals.

Relinquished Property: the property that is given up in a 1031 exchange.

Replacement Property: the like-kind property received in a 1031 exchange.

Preservation of Capital: the maintenance of or increase in the cost value of an investment.

Section 1031 of the IRS code: 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.

Securities Licenses: licenses required by securities law when investment advisors consult with clients regarding TIC/CORE transactions and other investment interests in real estate. In addition to their state real estate licenses, INVERNESS Real Estate Investment Consultants hold both Series 7 and Series 63 securities licenses.

Tax Basis or Basis: the cost of a property minus depreciation plus capital expenditures. 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 capital expenditure.

Taxpayer: the individual or entity conducting the 1031 exchange.

Tenants In Common or TIC (also known as Co-Ownership of Real Estate or CORE): shared ownership of property among two or more persons in which each tenant holds an undivided interest in the entire property, either equally or in designated interests of differing sizes. TIC/CORE investors are on deed and considered separate owners of the real estate, sharing pro rata in the income, tax benefits, and appreciation of the property.

Trust: an arrangement whereby property is transferred to a third party (called the Trustee) by a grantor (called the Trustor). The trustee holds the property for the benefit of the Beneficiary.