1031 Exchange Identification Requirements

Let’s spend a little time on replacement property identification because it is very important. And the reason it is important is this for those few exchanges that fail, they often fail because of deficiencies or discrepancies in the identification of replacement properties.

So does worth a little time to truly understand identification first off, is this after the sale of you relinquished or exchanged?

You were required to identify candidate or target replacement property, your properties and the rules regarding your identification require that this identification be made within 45 days of the transfer of your relinquished property. And it must be in writing. And if you’ve sold more than one property, the 45-day period actually starts when the first asset transfers.

So what are they? Identification rules? Well, here they are two rules in one exception.

First, the three points. Meaning that you can identify up to three properties of any value. If you prefer to identify more than three properties, you should consider the 200% rule. It allows you to identify more than three properties.

However, when you do the aggregated value of all the properties you have identified cannot exceed more than 200% of the value of the property you relinquished or so you typically only see this rule utilized when you’re exchanging from a larger property into a number of smaller. Lastly is the 95% exception works like this.

You may identify more than three properties and also identify total value, which exceeds 200% of the value of what you sold. But when you do, you must acquire at least 95% of the value of the properties that you are identifying almost like the 100% exception.

Isn’t it?

Now I mentioned that the identification had to be in writing.

This is how that is.

You may make the identification or you’re Qualified Intermediary facilitator or to one of the other parties to the exchange, for instance, your closer settlement agent or escrow holder or the seller of the proposed replacement property.

It’s also important to remember that once you have made an identification in your 45-day period as a lapsed, it cannot be changed.

This is why you need to make very sure that you can acquire the property or properties that you are identity. I mentioned that once the 45 days has expired your time does identify as expired as well.

Here’s one caveat. If you were still within the 45-day identification window, it is possible to revoke a previous identification and re-identify properties.

This is helpful in those instances where maybe a property that you had an interest in is no longer available, but you still want to have some flexibility in what you purchase — and that is identifying.