Reference
Definitions of the structures, programs, and terms that appear across Sightbridge's tax-advantaged real estate strategies.
The strict timeline that governs a 1031 Exchange. Within 45 days of the sale of the relinquished property, the investor must formally identify potential replacement properties. Within 180 days of the sale, the investor must close on the replacement property. Both deadlines are unforgiving, and missing either can disqualify the exchange and trigger immediate recognition of capital gains.
A transaction permitted under Section 1031 of the Internal Revenue Code that allows investors to defer the recognition of capital gains taxes on the sale of investment real estate by reinvesting proceeds into like-kind replacement property within a defined timeline. The strategy enables continued real estate investment without the tax leakage that would otherwise occur at the time of sale.
A sequential structure that allows investors who do not directly own institutional-quality real estate to potentially access the benefits of a 721 UPREIT contribution. The investor first reinvests proceeds from the sale of investment real estate into a Delaware Statutory Trust under IRC Section 1031. After a multi-year ownership period, a REIT may acquire the property held by the DST, or the DST interests themselves, in exchange for operating partnership units under IRC Section 721.
An individual or entity that meets specific financial thresholds under SEC Rule 501 of Regulation D and is therefore permitted to invest in certain private placements, including most DST and Qualified Opportunity Zone programs. For individuals, the standard tests include net worth exceeding $1 million (excluding primary residence), annual income exceeding $200,000 ($300,000 jointly with a spouse) for the past two years with reasonable expectation of the same for the current year, or holding certain professional certifications. Accredited investor status is typically verified by the issuer, the investor's financial advisor, or a third-party verification service. Most private real estate programs offered through wealth channels are restricted to accredited investors.
The original cost basis of an investment property as adjusted for items such as capital improvements (which increase basis) and depreciation deductions (which reduce basis) over the holding period. Adjusted basis determines the amount of gain or loss recognized on a sale, which in turn determines the capital gains tax owed. In a 1031 exchange, the investor's adjusted basis carries over to the replacement property, preserving the deferred gain for future taxation rather than eliminating it.
An accelerated depreciation provision under the Internal Revenue Code that allows taxpayers to deduct a substantial percentage of the cost of qualifying property in the year the property is placed in service, rather than depreciating it over its useful life. Bonus depreciation applies to property with a recovery period of 20 years or less, which includes many of the asset categories identified through cost segregation. The percentage available has changed over time as a result of successive tax legislation, so the specific benefit depends on the year of acquisition. Bonus depreciation is most commonly applied to commercial real estate in combination with a cost segregation study.
Any non-like-kind consideration received in an otherwise tax-deferred exchange, including cash, debt relief, or personal property. Boot is taxable to the extent of gain recognized in the exchange, even if the balance of the transaction qualifies for deferral under Section 1031 or Section 721. Cash boot most commonly arises when sale proceeds exceed the cost of the replacement property; debt boot arises when the debt on the relinquished property exceeds the debt assumed on the replacement property. Investors typically aim to avoid boot to preserve full tax deferral.
A measure of real estate yield calculated by dividing a property's net operating income by its current market value or purchase price. Trailing cap rate uses historical net operating income; going-in cap rate uses expected (underwritten) forward net operating income. Cap rates allow investors to compare income-producing properties on a normalized basis, independent of financing structure. Lower cap rates generally indicate higher-quality assets, lower perceived risk, or stronger markets; higher cap rates indicate the opposite. Cap rates are a primary pricing reference in institutional real estate underwriting.
The profit realized when an investment asset is sold for more than its adjusted basis. For real estate held longer than one year, gains are taxed at long-term capital gains rates, which are typically lower than ordinary income rates. The portion of gain attributable to prior depreciation is subject to a separate recapture rate. Capital gains are the primary tax exposure that 1031 exchanges and Qualified Opportunity Zone investments are designed to defer or reduce.
A tax doctrine providing that a taxpayer is considered to have received income, and is therefore taxable on it, when the income is credited to them, set apart for them, or otherwise made available without substantial restriction, even if the taxpayer has not physically taken possession of it. In a 1031 exchange, avoiding constructive receipt of sale proceeds is essential; if the investor at any point takes possession or control of the funds, the exchange fails. This is why the qualified intermediary holds the proceeds and the investor never directly receives them.
Definitions in this glossary are provided for informational and educational purposes only and do not constitute tax, legal, or investment advice. References to investment programs, structures, or tax outcomes are illustrative; actual results depend on transaction-specific facts and current law. Investors should consult their own tax, legal, and financial advisors before participating in any of the strategies referenced here. Nothing in this glossary constitutes an offer to sell or a solicitation of an offer to buy any security.