For some exchangers, identifying replacement property can be the most stressful part of the transaction. This article is intended to simplify the identification process by explaining the requirements and providing some tips to provide peace of mind.

The 45-Day Identification Period requires you to identify, in writing, replacement property. The identification must be sent to 1031 CORP. before midnight of the 45th day after the relinquished property is conveyed to a buyer. If multiple assets are sold, the 45 days are triggered with the first conveyance. The 45-days are based on calendar days and not extended if the 45th day falls on a Saturday, Sunday or legal holiday.

There are limitations on the number of properties you may identify. These limitations apply regardless of the number of relinquished properties you sell in this exchange. The limitations are based on two rules:

The 3-Property Rule allows you to identify up to three (3) properties regardless of their combined fair market value. You are not obligated to acquire all three properties but you must acquire at least one.

The 200% Rule allows you to identify four or more properties provided their combined fair market value does not exceed 200% (double) the fair market value of your relinquished property. The fair market value of the replacement properties is the listing or asking price of the property.

Identifying your Replacement Property

Your identification must be in writing and signed by you. Following are items to keep in mind when preparing your identification:

• Any real property held for business use or investment may qualify. The property may be located anywhere in the United States. Temporary regulations issued in 2005 allow the acquisition of rental properties in Guam, U.S. Virgin Islands and the Northern Mariana Islands.
• The property must be unambiguously identified using the street address or legal description of the property. If applicable, specific unit numbers are required.
• Your identification may be changed or additional properties added before midnight of your 45th day. It is essential to keep in mind the 3-Property Rule and 200% Rule. It may be necessary to revoke the original identification before making a new one.
• Any property purchased within the 45 days does not need to be formally identified, however, you must take it into consideration when identifying other properties.
• Acquiring replacement property from a related party should be given careful consideration.  

More Guidance & Tips to Simplify the Identification Process

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