Identification is the act of describing potential replacement properties in writing as a part of a 1031 exchange. Identification must be completed within 45 days of the sale of your relinquished property. There are guidelines for properly identifying property;
Section 1031 allows taxpayers 45 days from the time their first property is sold to identify potential replacement property. The IRS has set guidelines on the number and value of identified properties. Failure to follow these guidelines can result in a failed exchange:
- The Three Property Rule
Up to three properties may be identified without regard to their fair market value. This is the most commonly used rule. The exchanger may choose to purchase any number of the identified properties.
- The 200% Rule
More than three properties may be identified as long as their total fair market value does not exceed 200 percent of the selling price of the relinquished property.
- The 95% Rule
Any number of properties may be identified as long as the Exchanger purchases 95 percent of the fair market value of all identified properties.
If the taxpayer purchases their replacement property before the 45 day period is up, the act of purchasing the property counts as identification of that property.
Timetable for Closing
Most tax-deferred exchanges are classified as delayed exchanges. A basic delayed exchange occurs when a taxpayer sells "relinquished" property and exchanges it for "replacement" property within a 180-day time period. The taxpayer must adhere to other specific procedures and time period limitations.
The information contained at this site is solely provided for informational purposes and does not create a business or professional relationship. This website is intended to provide basic information about I.R.C. 1031 Section 1031 tax-deferred exchanges and does not contain tax or legal advice.