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Net Effective Equity - Taxpayer's gross equity (Market Value less Loans) less all transaction costs incurred in disposition (Relinquished Property) and acquisition (Replacement Property) phases of the exchange. Similar to   Seller's "net proceeds."

Qualified Intermediary - "Fourth party" who assists Taxpayer in accomplishing exchange. Qualified Intermediary enters into formal exchange agreement with Taxpayer and, pursuant to agreement, holds Taxpayer's "Net Effective Equity" and uses same to acquire Replacement Property.

Phase I - Disposition of Taxpayer's Relinquished Property.

Phase II - Acquisition of Taxpayer's Replacement Property.

Relinquished Property ("Down Leg") - Property Taxpayer disposes of in exchange.

Replacement Property ("Up Leg") - Property Taxpayer acquires in exchange .

Taxpayer (Exchangor" or "Exchanger") - Individual or entity desiring an exchange.

Seller - Individual or entity that owns Replacement Property desired by Taxpayer.

Seller-Accommodator Exchange - Exchange wherein Seller acts as accommodator. Exchange occurs first; Seller then transfers Taxpayer's property to Buyer.

Realized Gain - Taxpayer's actual gain. This is generally computed by the following formula:

              SALES PRICE ( Less Selling Expenses )

              AMOUNT REALIZED ( Less Adjusted Cost Basis )


A taxpayer purchased a property in 1998 for $150,000, made no improvements and took $60,000 in depreciation deductions. The taxpayer sold the property for $350,000 in 2021, incurring $10,000 in selling expenses. The taxpayer's realized gain is computed as follows:

SALES PRICE $350,000
Less Selling Expenses $10,000
Less Adjusted Cost Basis $90,000

Recognized Gain - Taxable portion of Realized Gain.

Deferred Gain - Portion of Realized Gain that is not currently taxed. Deferred gain reduces the basis in Replacement Property.

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