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Glossary

Glossary of 1031, DST & Real Estate Terms

Plain-English definitions of the 1031 exchange, DST, 721 UPREIT, Opportunity Zone, REIT, and tax terms accredited real estate investors encounter — each with source authority and related terms.

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10-Year HoldOpportunity ZonesHolding a Qualified Opportunity Fund for 10+ years erases capital gains tax on its appreciation. 1031 Exchange1031 ExchangeDefer capital gains tax by reinvesting investment property proceeds into like-kind real estate. 180-Day Exchange Period1031 ExchangeA 1031 investor has 180 calendar days from the sale to close on the replacement property. 45-Day Identification Period1031 ExchangeThe 45 calendar days a 1031 investor has to name replacement properties in writing. 721 Exchange721 / REITsContribute property to a REIT partnership for OP units and defer tax under Section 721.

A

Accredited InvestorInvestingSomeone meeting SEC income or net worth limits who can buy private securities like DSTs. Accredited Investor vs. Qualified PurchaserInvestingTwo SEC tiers: accredited is the lower bar; qualified purchaser needs about $5M in investments. Adjusted BasisTaxesOriginal cost plus improvements minus depreciation, the basis used to figure taxable gain.

B

Beneficial InterestDSTsAn investor's fractional ownership share in a DST that owns the underlying real estate. Boot1031 ExchangeNon-like-kind value (cash or debt relief) received in a 1031 exchange, taxable as gain.

C

Cap RateInvestingNet operating income divided by price, a property's unleveraged yield as a percent. Capital Gains TaxTaxesFederal tax on the profit from selling an asset; long-term rates are 0%, 15%, or 20%. Cost BasisTaxesWhat you originally paid for a property, the starting point for figuring taxable gain.

D

Debt Replacement1031 ExchangeMatching the mortgage paid off with equal new debt (or cash) to fully defer tax in a 1031. Delaware Statutory TrustDSTsAn entity holding real estate that offers passive, 1031-eligible fractional interests. Depreciation RecaptureTaxesTax on the gain created by past depreciation deductions, taxed at up to 25% on real estate. Distribution YieldInvestingThe annual income a DST or REIT pays, shown as a percent of the amount you invested. Drop and Swap1031 ExchangeSplitting partnership property into tenant-in-common shares so partners can 1031 separately. DST vs. TICDSTsTwo 1031 fractional structures: DSTs allow many passive owners; TICs cap 35 with control.

F

FFO (Funds From Operations)721 / REITsA REIT earnings metric that adds depreciation back to net income to show true cash flow. Full-CycleInvestingA DST or non-traded REIT that has been acquired, operated, and sold, returning investor capital.

I

Improvement Exchange1031 ExchangeUsing 1031 funds to build or renovate the replacement property before taking title.

L

Like-Kind Property1031 ExchangeInvestment or business real estate that qualifies for a tax-deferred 1031 exchange.

M

Master LeaseDSTsA DST leases its whole property to a master tenant who operates it and pays rent. Mortgage Boot1031 ExchangeTaxable gain when the replacement property's debt is less than the debt you paid off.

N

NAV (Net Asset Value)721 / REITsPer-share value of a fund or REIT, assets minus liabilities divided by shares. Net Investment Income TaxTaxesA 3.8% federal surtax on investment income once income tops $200k single / $250k joint.

O

OP Units721 / REITsPartnership units from a 721 exchange that defer tax and pay REIT-like distributions. Opportunity ZoneOpportunity ZonesAn IRS-designated distressed area where fund investments earn capital gains tax breaks.

P

Passive IncomeInvestingEarnings from investments that need little ongoing effort, like DST or rental distributions. PPM (Private Placement Memorandum)InvestingThe disclosure document detailing a private offering's terms, fees, risks, and sponsor.

Q

Qualified Intermediary1031 ExchangeAn independent party that holds 1031 proceeds so the investor never touches the cash. Qualified Intermediary Bond1031 ExchangeA fidelity bond protecting a 1031 investor's funds from theft by the intermediary. Qualified Opportunity FundOpportunity ZonesA fund that invests 90%+ of assets in Opportunity Zones to deliver capital gains tax breaks. Qualified Opportunity Zone BusinessOpportunity ZonesAn operating business in an Opportunity Zone a fund can invest in to meet its asset test.

R

Realized Gain vs. Recognized GainTaxesRealized gain is total profit; recognized gain is the part taxed now, and 1031 defers it. Regulation D (Reg D)InvestingThe SEC framework for selling securities privately, without full registration, used by DSTs. Regulation D Rule 506(b)InvestingReg D exemption: unlimited accredited plus up to 35 non-accredited investors, no advertising. Regulation D Rule 506(c)InvestingReg D exemption allowing advertising, but all investors must be verified as accredited. REIT721 / REITsA company owning income real estate that pays 90%+ of taxable income as dividends. Replacement Property1031 ExchangeThe new like-kind property a 1031 investor acquires with proceeds to complete the exchange. Reverse Exchange1031 ExchangeBuying the 1031 replacement property before selling the old one, via a parked title.

S

Securitized Real EstateDSTsProperty ownership packaged as securities, DST interests or REIT shares, instead of title. SponsorDSTsThe firm that structures, acquires, and manages a DST or real estate offering. Springing LLCDSTsA backup structure converting a DST to an LLC so a manager can rescue a troubled property. Step-Up in BasisTaxesResets an inherited asset's basis to date-of-death value, often erasing deferred gains.

T

Tenants in Common (TIC)DSTsDirect deeded co-ownership by up to 35 investors, each usable in a 1031 exchange. Triple-Net Lease (NNN)InvestingA commercial lease where the tenant pays taxes, insurance, and maintenance on top of rent.

U

Unrecaptured Section 1250 GainTaxesThe depreciation portion of real estate gain, taxed at a maximum federal rate of 25%. UPREIT721 / REITsA REIT structure enabling 721 exchanges of property for OP units, deferring tax.