1031 Exchange Knowledge Base
Understand the key financial, tax, accounting, and real estate terms that impact your 1031 exchange. Browse simple definitions designed to help you make smarter investment decisions.
Showing 57 of 57 terms
Accelerated depreciation is a method that allows property owners to take larger depreciation deductions in the earlier years of an asset’s life, reducing taxable income faster compared to traditional straight-line methods…
Accumulated depreciation represents the total amount of depreciation that has been recorded on an asset over time, reducing its overall book value on financial statements…
The Alternative Minimum Tax is a separate tax system designed to ensure that high-income individuals and entities pay a minimum level of tax, even after deductions and credits…
Appreciation refers to the increase in value of an asset over time, often driven by market demand, location, improvements, or overall economic conditions…
Bankruptcy is a legal process used when a person or business cannot repay debts, allowing assets to be reviewed, managed, or liquidated under court supervision…
A bond is a long-term debt security where an issuer borrows money from investors and agrees to repay the principal with periodic interest…
Book value is the recorded value of an asset or liability on a balance sheet after adjustments such as depreciation, amortization, or impairment…
Boot is cash, debt relief, or other non-like-kind value received in a 1031 exchange that may create taxable income for the investor…
A capital expenditure is money spent to buy, improve, or extend the life of a long-term asset such as real estate, buildings, or equipment…
A capital gain is the profit made when an investment asset, such as real estate, is sold for more than its original purchase price…
Carrying value is the net value of an asset or liability after accounting adjustments such as depreciation, amortization, impairments, and accumulated liabilities…
A dealer is a person or business that buys and sells securities or assets for its own account, usually acting as a principal in transactions…
A debt instrument is a financial document showing that money has been borrowed and outlining the repayment terms, interest, and borrower obligations…
The debt-to-equity ratio compares how much debt a company uses compared to shareholder equity, helping measure leverage and financial risk…
A Delaware Statutory Trust is a passive real estate ownership structure that may allow investors to participate in 1031 exchange eligible properties…
Depreciation is a non-cash tax deduction that spreads the cost of a long-term asset over its useful life to account for wear and decline…
An exchange refers to the act of transferring money, property, or services between parties, often involving a combination of these elements in a structured transaction…
Face value is the stated amount of a financial instrument, such as a bond, that is paid back to the holder at maturity, regardless of market fluctuations…
Fair market value is the price a property would sell for between a willing buyer and seller, both having reasonable knowledge and no pressure to complete the transaction…
A fiduciary is a person or entity legally obligated to act in the best interest of another party, especially when managing money, assets, or financial decisions…
FIFO, or First In First Out, is an accounting method where the first assets purchased are assumed to be the first ones sold or used…
A gain is the profit earned when the sale price of an asset or investment exceeds its original cost or adjusted basis…
A general partnership is a business structure where two or more partners share management responsibilities and are personally liable for the business’s debts…
Goodwill is an intangible asset representing the extra value paid for a business beyond its identifiable assets and liabilities…
A hedge is a strategy used to reduce investment risk by taking an offsetting position in another asset or financial instrument…
A held-to-maturity security is a debt investment that an investor intends to hold until it reaches its maturity date…
Holding period refers to the length of time an investor owns an asset before selling or disposing of it…
An intangible asset is a non-physical asset that still holds value, such as patents, trademarks, or brand recognition…
Interest is the cost of borrowing money, typically expressed as a percentage rate paid over time to a lender…
Internal Rate of Return is a metric used to measure the profitability of an investment based on expected future cash flows…
Intrinsic value represents the true underlying value of an asset based on its fundamentals rather than its current market price…
A joint venture is a business arrangement where two or more parties combine resources to complete a specific project or investment…
Junk bonds are high-risk debt securities issued by companies with lower credit ratings, typically offering higher interest rates to compensate investors for the increased risk…
A key employee is an individual who meets specific ownership, compensation, or leadership criteria within a company, often used in regulatory or tax-related classifications…
Labor refers to the physical or mental effort used to perform work, whether in a business, construction, or service-related environment…
A limited partnership is a business structure with both general partners who manage operations and limited partners who invest but have limited liability…
A loan is a financial agreement where a lender provides funds to a borrower with the expectation that the amount will be repaid over time, usually with interest…
A long-term gain is profit from the sale of an asset that has been held for more than one year, typically taxed at a lower rate than short-term gains…
A long-term liability is a financial obligation that is due more than one year in the future, often tied to loans, mortgages, or other financing…
The marginal tax rate is the percentage of tax applied to the next dollar of income earned, helping determine how additional income is taxed…
Market value is the current price an asset would sell for in an open and competitive market based on supply and demand…
Materiality refers to the importance of financial information and whether it could influence decisions made by investors or stakeholders…
Net Asset Value is the value of an investment fund per share, calculated by subtracting liabilities from total assets and dividing by outstanding shares…
Notes receivable are written agreements showing money owed to a business, typically documented as formal promissory notes…
Notional value is an assigned value used in financial contracts to calculate payments, even though it may not represent actual cash exchanged…
An operating agreement is a legal document that outlines how a limited liability company is structured and managed…
Operating profit or loss is the income generated from a company’s core business activities before interest and taxes are deducted…
Transfer tax is a government-imposed tax applied when ownership of property is transferred, whether through a sale, gift, or estate transaction…
Unearned interest is interest that has been received by a lender but has not yet been recognized as income because the time period has not fully passed…
Unlimited liability means business owners are personally responsible for all debts and obligations, putting their personal assets at risk if the business cannot meet its obligations…
Variable costs are expenses that change based on production levels, activity, or usage, increasing or decreasing depending on how much business is being conducted…
A variable rate loan is a loan with an interest rate that can change over time based on market conditions or a specified financial index…
A warrant is a financial security that gives the holder the right to purchase stock at a specific price within a set period of time…
The weighted-average-cost method is an accounting approach that calculates inventory value based on the average cost of all available items during a period…
Yield is the income generated from an investment, typically expressed as a percentage of its cost or current market value…
The yield curve is a graph that shows the relationship between interest rates and the maturity dates of debt securities…
A zero-coupon bond is a bond that does not pay periodic interest and instead pays the full value, including accrued interest, at maturity…
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