1031 & DST Glossary
Plain-language definitions of the terms that come up across 1031 exchanges, DSTs, 721 UPREITs, Opportunity Zones, REITs, and mineral & royalty investing.
The 10-year hold is the central tax benefit of investing in a Qualified Opportunity Fund (QOF). Under Section 1400Z-2, if an investor reinvests an eli
A 1031 exchange (named for Internal Revenue Code Section 1031) lets a real estate investor defer federal capital gains tax and depreciation recapture
The 180-day exchange period is the second hard deadline in a deferred 1031 exchange. The investor must acquire and close on the replacement property w
The 45-day identification period is the first hard deadline in a 1031 exchange. Beginning on the day the relinquished property closes (the day after t
A 721 exchange, named for Internal Revenue Code Section 721, lets a real estate owner contribute appreciated property to an operating partnership in e
An accredited investor is a person or entity permitted to invest in certain unregistered, private securities offerings under SEC Rule 501 of Regulatio
"Accredited investor" and "qualified purchaser" are two distinct investor-qualification standards in U.S. securities law, and the difference determine
Adjusted basis is an asset's cost basis, increased or decreased over time by various events, and it is the figure used to determine taxable gain or lo
A beneficial interest is the form of ownership an investor holds in a Delaware Statutory Trust (DST). Rather than holding direct title to the real est
Boot is any non-like-kind value an investor receives in a 1031 exchange, and it is the portion of the transaction that becomes taxable. The most commo
The capitalization rate, or cap rate, is a fundamental real estate metric that expresses a property's unlevered annual return as a percentage of its v
Capital gains tax is the federal (and often state) tax imposed on the profit realized when a capital asset, such as investment real estate, stocks, or
Cost basis is the amount the tax law treats as your investment in a property, and it is the starting point for calculating gain or loss when you sell.
Debt replacement is the requirement, in a fully tax-deferred 1031 exchange, that the investor offset any mortgage debt retired on the relinquished pro
A Delaware Statutory Trust (DST) is a legal entity formed under Delaware law that holds title to income-producing real estate and divides beneficial o
Depreciation recapture is the portion of the tax bill on a real estate sale attributable to the depreciation deductions the owner claimed during the h
Distribution yield is the annualized cash distribution an investment pays out, expressed as a percentage of the amount invested. For a Delaware Statut
A drop and swap is a technique used when real estate is held inside a partnership or multi-member LLC but the individual owners want to go separate wa
DST versus TIC compares the two principal fractional-ownership structures used to acquire replacement property in a 1031 exchange: the Delaware Statut
Funds from operations (FFO) is the standard measure of operating performance used to evaluate real estate investment trusts. Because REITs own depreci
"Full-cycle" describes a real estate offering, most often a Delaware Statutory Trust (DST), that has completed its entire investment life, from the in
An improvement exchange, also called a construction or build-to-suit exchange, is a 1031 structure that lets an investor use exchange proceeds to make
"Like-kind" describes the relationship the relinquished and replacement properties must have to qualify for tax deferral under IRC Section 1031. For r
A master lease is a structure used in many Delaware Statutory Trust (DST) offerings to comply with the operating constraints that the IRS placed on DS
Mortgage boot, also called debt-relief boot, is the taxable amount that arises in a 1031 exchange when the debt paid off on the relinquished property
Net asset value (NAV) is the estimated per-share value of an investment vehicle's underlying assets minus its liabilities, divided by the number of sh
The net investment income tax (NIIT) is a 3.8% federal surtax, enacted as part of the Affordable Care Act and codified in Section 1411, that applies t
Operating partnership units, commonly called OP units, are equity interests in the operating partnership of an UPREIT. An investor who contributes rea
A Qualified Opportunity Zone is an economically distressed census tract designated under the Opportunity Zone program created by the 2017 Tax Cuts and
Passive income, in the tax sense defined by Section 469, is income from a trade or business in which the taxpayer does not materially participate, mos
A private placement memorandum (PPM), sometimes called an offering memorandum, is the primary disclosure document for a securities offering sold priva
A qualified intermediary (QI), sometimes called an accommodator or exchange facilitator, is an independent third party that holds the proceeds from th
A qualified intermediary bond, more precisely a fidelity bond carried by a 1031 qualified intermediary (QI), is a form of insurance protection meant t
A Qualified Opportunity Fund (QOF) is the investment vehicle through which capital flows into the Opportunity Zone program. Defined under IRC Section
A qualified opportunity zone business (QOZB) is an operating business or property-holding entity that meets the requirements of Section 1400Z-2 of the
Realized gain and recognized gain are related but distinct tax concepts, and the difference between them is the foundation of every tax-deferral strat
Regulation D is a set of SEC rules that allow companies to raise capital by selling securities without registering them with the SEC, provided the off
Rule 506(b) is the most widely used exemption under Regulation D of the Securities Act, allowing an issuer to raise an unlimited amount of capital in
Rule 506(c) is the Regulation D exemption, created by the JOBS Act in 2013, that permits issuers to use general solicitation and advertising to market
A real estate investment trust (REIT) is a company that owns, operates, or finances income-producing real estate and elects special tax treatment unde
Replacement property is the new like-kind real estate an investor acquires to complete a 1031 exchange and defer the gain on the property that was sol
A reverse 1031 exchange is a structure in which the investor acquires the replacement property before selling the relinquished property, reversing the
Securitized real estate refers to ownership of real property held through a security, a financial instrument such as a beneficial interest in a Delawa
In real estate private placements such as Delaware Statutory Trusts (DSTs), Opportunity Zone funds, and private REITs, the sponsor is the company that
A springing LLC, sometimes called a springing-LLC provision, is a contingency mechanism built into many Delaware Statutory Trust (DST) agreements that
A step-up in basis is the adjustment of an inherited asset's cost basis to its fair market value as of the decedent's date of death, under IRC Section
Tenancy in common (TIC) is a form of co-ownership in which two or more investors each hold an undivided fractional interest in the same real property,
A triple-net lease, often abbreviated NNN, is a commercial lease structure in which the tenant pays not only base rent but also the three major operat
Unrecaptured Section 1250 gain is the portion of the gain on the sale of depreciable real property that is attributable to depreciation previously ded
An UPREIT, or umbrella partnership real estate investment trust, is a common REIT structure in which the REIT does not own properties directly but ins