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Constructive Receipt of Cash
Napkin Test
Net Effective Equity
Qualified Intermediary
Phase I

Phase II
Relinquished Property
Replacement Property
Seller-Accommodator Exchange
Realized Gain
Recognized Gain
Deferred Gain

Accommodator - Qualified Intermediary. An accommodator can also be a Buyer or Seller in a three-way exchange.

Boot - Unlike property or non-qualifying property such as securities, cash, notes, partnership interests, etc. Taxpayer who receives boot ("unlike" property) will have to recognize gain to the extent of the net boot received or realized gain, whichever is less.

Buyer - Individual that would like to purchase Taxpayer's Relinquished Property.

Buyer-Accommodator Exchange - Exchange wherein Buyer acts as accommodator. Exchange occurs after Buyer acquires Replacement Property from Seller.

Constructive Receipt of Cash - Receipt of cash by Taxpayer's agent in transaction or "deemed receipt" by Taxpayer as a result of Taxpayer's legal right "to demand cash" under an improperly structured exchange.

Like-Kind - Refers to the "nature or character" of the property and not to its "grade or quality." That is, real property held for investment or the productive use in a trade or business may generally be exchanged on a tax-deferred basis for other real property. Personal property held for investment or the productive use in a trade or business may generally be exchanged on a tax-deferred basis for other personal property, provided the personal property is of "like kind" or "like class." Professional tax advice should always be obtained when planning exchanges.

"Napkin Test" - A simple test developed by well-known attorney Marvin Starr to determine whether there will be Boot in an exchange.  As a general rule, the taxpayer who trades up in value, loans ("encumbrances") and equity will not have to recognize any gain. In Example 1, since the Taxpayer goes up or even in value, loans and equity, there is no Boot. In Example 2, the Taxpayer is going down in value and loans and will have $100,000 in Boot (mortgage relief).

"Nakpin Test"
Marvin Starr, Esp.
Relinquished Property
Replacement Property
Example 1: Market Value
Example 2: Market Value

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