1031 Exchange Identification Rules
Although a taxpayer can identify more than one replacement property, they must adhere to one of the three rules of identification listed below:
The 3 Property Rule – Three (3) replacement properties without regard to their fair market value;
The 200% Rule – Any number of replacement properties so long as their aggregate fair market value of all replacement property does not exceed 200% of the aggregate fair market value of all relinquished properties;
The 95% Rule – Any number of replacement properties without regard to the combined fair market value, as long as the replacement properties acquired amount to at least 95% of the fair market value of all identified properties.
Requirements for Identifying Replacement Properties:
Identification must be made in a written document signed by the taxpayer;
The identification must be hand-delivered, mailed, telecopied, or otherwise sent before the end of the identification period;
The identification must be sent to the person who is obligated to transfer the replacement property to the taxpayer (generally, the qualified intermediary) or to any other person involved.
Each potential replacement property must be described in detail (i.e., legal description, street address or distinguishable name).
This document is designed for general information only. The information presented on this document should not be construed to be formal legal or tax advice nor the formation of a lawyer/client relationship.
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