1031 Exchange & DST Glossary: 24 Terms That Matter

Twenty-four terms, defined the way practitioners use them. This glossary stays deliberately narrow — 1031, DST, and underwriting vocabulary only — and every entry links up to the guide that treats it fully.

1031 exchange

A swap of investment real property for like-kind investment real property under IRC §1031 that defers capital gains and depreciation-recapture tax. Deadlines and rules are strict; see the calculator.

45-day identification period

The 45 calendar days from closing in which replacement property must be identified in writing to the qualified intermediary. No weekend or holiday extensions.

180-day exchange period

The deadline to close on replacement property: 180 calendar days from transfer, or the tax-return due date for that year if earlier.

Accredited investor

An investor meeting SEC wealth or income tests (Reg D): $1M net worth excluding primary residence, or $200K income ($300K joint) sustained, among other paths.

Adjusted basis

Purchase price plus capital improvements minus accumulated depreciation. The starting line for computing gain.

Boot

Non-like-kind value received in an exchange — cash taken out or debt not replaced — taxable up to the amount of gain.

Cap rate

Net operating income divided by property price; the market's quoted yield on a stabilized building.

Delaware Statutory Trust (DST)

A trust holding institutional real estate in which investors own beneficial interests that qualify as like-kind replacement property under Rev. Rul. 2004-86. Passive by legal design.

Depreciation recapture

Tax at up to 25% on gain attributable to depreciation deductions previously taken (unrecaptured §1250 gain).

Disqualified person

Someone who cannot serve as your QI or transact with your exchange — including your agent, attorney, accountant, or close family (Treas. Reg. §1.1031(k)-1(k)).

DSCR

Debt-service coverage ratio: NOI divided by annual debt payments. Lenders' first question.

Full-cycle

A DST that has completed its lifecycle — property sold, proceeds returned, investors free to exchange again or exit.

Like-kind

For real estate, broadly interpreted: any U.S. investment real property for any other. An office can exchange into farmland or a DST interest.

Master lease

The structure by which a DST's operating flexibility problem is solved: the trust leases to a master tenant who handles subleasing within Rev. Proc. 2004-86 limits.

NIIT

The 3.8% net investment income tax (§1411) on investment gains above MAGI thresholds.

NOI

Net operating income: collected revenue minus operating expenses, before debt service and capex.

Non-recourse loan

Debt secured only by the property, required inside DSTs and IRA-held real estate; the investor gives no personal guarantee.

Qualified intermediary (QI)

The independent party that holds exchange proceeds and papers the swap. You may never touch the funds. See choosing a QI.

Reg D 506(c)

The SEC exemption allowing public advertising of a private offering, provided every purchaser's accredited status is verified by reasonable steps.

Reverse 1031 exchange

Buying the replacement before selling the relinquished property, via an exchange accommodation titleholder (Rev. Proc. 2000-37). Costlier and more complex.

Seven deadly sins

The seven actions a DST trustee cannot take (renegotiate leases, refinance, accept new equity, reinvest proceeds, make non-minor capex, etc.) under Rev. Proc. 2004-86 — the reason DSTs are stabilized, passive vehicles.

Sponsor

The firm that acquires the property, structures the DST or fund, and manages the business plan. Compensated by fees and structure, not magic.

Step-up in basis

At death, heirs receive property at fair market value — the deferred gain from a lifetime of exchanges is never taxed. The endgame of “swap till you drop.”

721 exchange (UPREIT)

Contributing property (often a DST interest after a holding period) to a REIT operating partnership for OP units — liquidity and diversification, but no further 1031s afterward.