Accommodator — see Qualified Intermediary
Another term for a Qualified Intermediary (QI). Sometimes specifically called an "exchange accommodator" or "exchange accommodation titleholder" in the context of reverse exchanges.
Accredited Investor
An individual or entity that meets the income or net-worth thresholds defined in Rule 501 of Regulation D under the Securities Act of 1933. Generally, an individual qualifies as accredited with net worth above $1 million (excluding primary residence) or income above $200,000 individually / $300,000 jointly for the past two years. Reg D private placements like DSTs are restricted to accredited investors.
Active Management
Direct involvement in the operations, leasing, and decision-making of a real estate property. Direct property ownership requires active management. DSTs are passive — the master tenant handles operations, and investors do not participate in management decisions.
Basis
The amount of capital you have invested in a property for tax purposes. Initial basis usually equals the purchase price plus closing costs and capital improvements. Basis decreases as you take depreciation deductions. In a 1031 exchange, the basis from the relinquished property carries forward to the replacement (with adjustments for boot or new debt).
Beneficial Interest
The fractional ownership interest investors hold in a Delaware Statutory Trust. Beneficial owners are entitled to a pro-rata share of the trust's distributions and disposition proceeds, but they don't hold legal title to the underlying property — the trust does.
Boot
Anything received in a 1031 exchange that isn't like-kind property. Boot is taxable. Two main types: cash boot (cash you take out of the proceeds) and mortgage boot (the difference when replacement debt is less than relinquished debt). The rule of thumb to avoid boot: replacement value ≥ relinquished value, replacement debt ≥ relinquished debt.
Bridge Financing
Short-term debt used to acquire a property until permanent financing is secured. Bridge debt typically has higher interest rates and shorter terms (1–3 years). Offerings that rely on bridge financing carry refinancing risk during the hold period.
Capital Gains Tax
The federal tax owed on the appreciation of an investment when sold. For real estate held more than one year, the maximum federal rate is currently 20% (plus state tax and the 3.8% net investment income tax for higher earners). A 1031 exchange defers this tax indefinitely.
Cap Rate (Capitalization Rate)
A property's net operating income divided by its purchase price, expressed as a percentage. Cap rates are a quick way to compare income properties; lower cap rates generally indicate higher-quality assets in stronger markets. A property purchased at a 5% cap rate yields $50,000 of NOI per $1 million of purchase price.
Cash Boot
The portion of 1031 sale proceeds that you take in cash rather than reinvest. Cash boot is taxable in the year of the exchange, generally as capital gain.
See also: Boot.
CMBS (Commercial Mortgage-Backed Securities)
Bonds backed by pools of commercial real estate mortgages. CMBS lenders are common debt providers for DST properties. CMBS loans are typically non-recourse, fixed-rate, and have prepayment penalties (defeasance).
Constructive Receipt
The IRS doctrine that treats you as having received income or proceeds if you have access to or control over them, even if you don't physically possess them. In a 1031 exchange, any constructive receipt of sale proceeds disqualifies the exchange. This is why proceeds must flow directly to a Qualified Intermediary at sale closing.
Cost Basis — see Basis
Same as basis — the amount you've invested in a property for tax purposes.
Debt Service Coverage Ratio (DSCR)
A property's net operating income divided by its annual debt service. DSCR measures how much cushion a property has above its debt payments. A DSCR of 1.25x means NOI is 25% above debt service — a typical lender requirement. Higher DSCRs are more conservative; DSCRs near 1.0x are stressed.
Delaware Statutory Trust (DST)
A legal entity created under Delaware law that holds title to real estate and allows multiple investors to own fractional beneficial interests. The IRS recognizes DST interests as like-kind to direct real estate (Rev. Rul. 2004-86), which makes DSTs a common 1031 replacement vehicle. DSTs are Reg D private placements available only to accredited investors.
See: DSTs Explained.
Depreciation
An annual deduction that allows real estate investors to recover the cost of an investment property over time. Residential rental property depreciates over 27.5 years; commercial property over 39 years. Depreciation reduces taxable income during the hold but reduces basis, increasing taxable gain at sale.
Depreciation Recapture
The tax owed on previously claimed depreciation when you sell a property. Federal recapture rate is 25%. A 1031 exchange defers depreciation recapture along with capital gains, but it doesn't eliminate it — recapture comes due when you eventually sell without 1031-ing again.
Direct Ownership
Holding fee-simple title to a property, individually or through an entity you control. The opposite of fractional ownership through a DST or TIC. Direct ownership offers full control and 1031 eligibility but requires active management.
Disposition
The sale of a property. In DSTs, "disposition" refers to when the sponsor sells the underlying property and distributes proceeds to beneficial owners. Disposition fees are paid to the sponsor at sale, disclosed in the PPM.
Exchange Accommodator — see Qualified Intermediary
Another term for the QI in a 1031 exchange. Distinct from Exchange Accommodation Titleholder (EAT), which is the entity used in reverse exchanges to hold title temporarily.
Exchange Period — see 180-day rule
The 180 calendar days from the sale of the relinquished property in which you must close on the replacement property. The IRS does not extend this deadline.
FactRight
An independent third-party due diligence firm that produces reports on DST and other Reg D offerings. FactRight reports cover sponsor financial health, offering structure, and property analysis. Sponsors typically engage FactRight (or a similar firm such as Cherry Bekaert) and share the report with prospective investors on request.
See: Sponsor Due Diligence.
Fee Simple
The most complete form of real estate ownership — full title to land and buildings without time restrictions. The opposite of leasehold or fractional interests.
FINRA (Financial Industry Regulatory Authority)
The self-regulatory organization that oversees U.S. broker-dealers and registered representatives. Securities sold through broker-dealers (including DSTs) must be sold by FINRA-registered representatives. FINRA enforces conduct and suitability rules.
Form 8824
The IRS form ("Like-Kind Exchanges") used to report a 1031 exchange on your tax return for the year of the relinquished property sale. Form 8824 documents the exchange dates, properties, and gain calculation.
General Solicitation
Public marketing of a securities offering. Most Reg D offerings (including DSTs) historically prohibited general solicitation, restricting marketing to existing relationships. Rule 506(c) under Reg D now permits general solicitation if the issuer takes reasonable steps to verify investor accreditation. Compliance with Reg D's general-solicitation rules matters because violations can disqualify the offering's securities exemption.
Hold Period
The expected duration that a sponsor will hold a property before selling. DST hold periods are typically 5–10 years. Actual hold may differ from projected hold based on market conditions at the sponsor's planned disposition.
Identification Period — see 45-day rule
The 45 calendar days from sale closing in which you must identify replacement property in writing to your QI. The IRS does not extend this deadline.
Identification Rules (3-Property, 200%, 95%)
The three IRS-defined methods for identifying replacement property. The 3-Property Rule allows up to three properties of any value. The 200% Rule allows any number of properties as long as their combined fair market value is no more than 200% of the relinquished property's value. The 95% Rule allows any number of properties of any value, but you must close on at least 95% of the total identified value. You must choose one rule — they don't combine.
Illiquid
Cannot be readily sold or converted to cash. DST interests are illiquid — there is no public secondary market, and most investors hold to disposition. Illiquidity is a significant consideration when evaluating any DST investment.
Investment Property
Real estate held for investment or productive use in a trade or business — eligible for 1031 treatment. Excludes primary residences and property held by dealers as inventory.
IRR (Internal Rate of Return)
The annualized rate of return on an investment, accounting for the timing of cash flows. IRR is the most common metric used to express the historical performance of completed real estate offerings. Projected IRRs in offering documents are estimates, not guarantees.
K-1 (Schedule K-1)
The tax form that pass-through entities (partnerships, LLCs, trusts) use to report each investor's share of income, losses, and other tax items. DST investors typically receive a K-1 in early Q1 each year reporting their pro-rata share of the trust's tax items.
Like-Kind Exchange
The general term for exchanges that qualify under Section 1031. The like-kind standard for real estate is broad — almost any real property held for investment or business use qualifies as like-kind to almost any other.
Like-Kind Property
Real property held for investment or productive use in a trade or business that qualifies as eligible replacement property in a 1031 exchange. A strip center is like-kind to an apartment building. Raw land is like-kind to a warehouse. A DST interest is like-kind to direct real estate.
Loan-to-Value (LTV)
The ratio of debt to property value. A property worth $10 million with $6 million of debt has a 60% LTV. Lower LTV is more conservative; high-LTV offerings carry greater downside risk if property values decline.
Master Lease
A single net lease between a DST trust and a master tenant covering the entire property. The master lease structure satisfies the IRS "no new leases" restriction on DSTs while allowing operational management of the property.
Master Tenant
The entity that signs the master lease with the DST trust and is responsible for property operations, including subleasing to actual tenants. The master tenant is often (though not always) affiliated with the sponsor.
Mortgage Boot
The taxable difference when replacement property has less debt than relinquished property. Mortgage boot can be offset by adding cash to the replacement transaction.
See also: Boot.
Non-Recourse Debt
Debt for which the borrower is not personally liable beyond the property securing the loan. Most DST debt is non-recourse — if the property fails to pay, the lender's recourse is limited to the property itself, not the trust's investors. Non-recourse debt protects investors but typically carries different pricing than recourse alternatives.
Offering Documents
The legal documents associated with a Reg D offering, including the Private Placement Memorandum (PPM), the subscription agreement, and any supplements. Offering documents control what's being offered and on what terms — they're the legally binding source of truth.
Passive Income
Income generated without active participation in the underlying activity. DST distributions are typically classified as passive income for tax purposes. The IRS distinguishes between passive activities (rental real estate generally) and active business income.
PPM (Private Placement Memorandum)
The disclosure document for a Reg D securities offering. PPMs disclose the offering's structure, fees, conflicts of interest, risk factors, and projected financial performance. Reading the PPM is essential before subscribing to any DST.
See: Sponsor Due Diligence.
Promote (Carried Interest)
The sponsor's incentive compensation, paid as a percentage of profits above a defined hurdle rate. A "20% promote over an 8% preferred return" means the sponsor receives 20% of profits once investors have received an 8% annualized return. Promote structures align sponsor incentives with investor outcomes — but vary widely in detail.
Property Manager
The party responsible for day-to-day operations of a property — leasing, maintenance, tenant relations, financial reporting. In a DST, the property manager is often (though not always) affiliated with the master tenant or sponsor.
Qualified Intermediary (QI)
The independent third party required by the IRS to facilitate a 1031 exchange. The QI receives sale proceeds, holds them in a segregated account, and funds the replacement property purchase. The QI must be engaged before the relinquished property closes. Choosing a reputable QI matters — look for audit history, segregated accounts, bonding, and insurance.
Qualified Use
The IRS requirement that property be held for investment or for productive use in a trade or business to qualify for 1031 treatment. Personal-use property (primary residences, second homes used personally) does not meet the qualified use test.
Real Property
Land and anything permanently attached to it (buildings, fixtures). Section 1031 applies only to real property exchanges (since 2018; previously included some personal property too).
Recapture — see Depreciation Recapture
The tax owed on previously claimed depreciation when a property is sold without a 1031 exchange.
Reg D / Regulation D
The SEC regulation governing private placement securities offerings. Most DSTs are offered under Rule 506(b) or 506(c) of Reg D. Reg D offerings are restricted to accredited investors and have specific marketing and disclosure requirements.
REIT (Real Estate Investment Trust)
A corporation that owns income-producing real estate and distributes most of its income to shareholders. REITs come in three varieties: publicly traded (NYSE-listed), public non-traded, and private. None are 1031-eligible because REIT shares are securities, not real property.
See: DSTs Explained for DST vs REIT comparison.
Replacement Property
The property acquired in a 1031 exchange to replace the relinquished property. Must be like-kind, of equal or greater value, with equal or greater debt (or cash to make up the difference), and titled in the same taxpayer name.
Reverse Exchange
A 1031 exchange in which the replacement property is acquired before the relinquished property is sold. Governed by IRS Revenue Procedure 2000-37, with a 180-day total timeline. Reverse exchanges are more complex and expensive than standard exchanges and require an Exchange Accommodation Titleholder (EAT) to hold either the new or old property.
Risk Factors
The section of a PPM (and SEC filings) that discloses risks the issuer is required to flag. Reading the Risk Factors section is essential — it tells you what the issuer's lawyers thought was significant enough to disclose in writing.
Same-Taxpayer Rule
The IRS requirement that the taxpayer who owns the relinquished property must take title to the replacement. If the relinquished property is in an LLC, the replacement must be in the same LLC. Single-member LLCs (treated as disregarded entities for tax purposes) generally satisfy this rule when matched with the underlying owner.
Section 1031
The section of the Internal Revenue Code that authorizes the deferral of capital gains tax when investment or business property is exchanged for like-kind property. Section 1031 has existed in some form since 1921.
SEC (Securities and Exchange Commission)
The federal regulator of U.S. securities markets. The SEC oversees Reg D offerings (including DSTs) and public-company filings. Public-company sponsors file 10-Ks, 10-Qs, and 8-Ks with the SEC; these filings are publicly accessible at sec.gov/edgar.
Sponsor
The company that creates and operates a DST, fund, or other investment offering. The sponsor identifies the property, structures the offering, and manages the trust through the hold period. Sponsor track record, financial health, and incentive structure are the most important diligence items in any DST.
Step-Up in Basis
The tax provision that adjusts the basis of inherited property to its fair market value at the date of the prior owner's death. Heirs of property held in 1031 exchanges receive a stepped-up basis, eliminating the deferred gain entirely. This is why the tax-deferral chain of 1031 exchanges followed by step-up at death can permanently eliminate capital gains tax.
Subscription Agreement
The contract by which an investor commits to purchase a beneficial interest in a DST. The subscription agreement includes accreditation representations, consent disclosures, and the investor's signature on the offering's terms. Subscription agreements are usually included in the offering documents.
Tenancy-in-Common (TIC)
A form of co-ownership of real property where each investor holds a fractional fee-simple interest and is on title directly. TICs were the predominant 1031 replacement vehicle before DSTs and still exist, but TICs require unanimous consent for major decisions and are limited to 35 co-owners. Most institutional 1031 replacement product moved into DST structure after IRS Rev. Rul. 2004-86.
Three-Property Rule
The most common 1031 identification rule. Identify up to three replacement properties of any value by Day 45. You don't need to close on all three — you only need to close on at least one of them within 180 days.
200% Rule
An identification rule that allows you to identify any number of replacement properties as long as their combined fair market value does not exceed 200% of the relinquished property's value.
95% Rule
An identification rule that allows you to identify any number of replacement properties of any value, but requires you to close on at least 95% of the total identified value. Rarely used; serves as a fallback when investors blow past the first two rules.
Underwriting
The sponsor's process of analyzing a property and forecasting its financial performance. Underwriting assumptions about rent growth, vacancy, expenses, and exit pricing drive the offering's projected returns. Conservative underwriting produces realistic projections; aggressive underwriting produces optimistic projections that may not materialize.
Waterfall (Distribution Waterfall)
The order in which an offering's cash flows are distributed among investors and the sponsor. A typical waterfall pays investors a preferred return first, then returns capital, then splits remaining profits between investors and sponsor (often 80/20 above a hurdle). Understanding the waterfall is essential to understanding sponsor incentives.
Need clarification on a specific term?
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