There are many rules that regulate 1031 exchanges. In this article, we will talk about how many replacement properties you can designate in a 1031 exchange.
Good News, Bad News
The good news is you can in theory purchase any number of replacement properties to complete your 1031 exchange.
The bad news is that there are restrictions on how many replacement properties you can designate or identify in writing during the first 45 day identification period.
Key Restrictions
The key restrictions that are imposed on the number of properties which may be identified as potential replacement properties are listed below. More than one potential replacement property can be identified as long as you satisfy one of these alternative rules:
The Three-Property Rule - Up to three properties regardless of their market values. All identified properties are not required to be purchased to satisfy the exchange, only the amount needed to satisfy the value requirement.
The 200% Rule - Any number of properties as long as the aggregate fair market value of all replacement properties does not exceed 200% of the aggregate Fair Market Value (FMV) of all of the relinquished properties as of the initial transfer date. All identified properties are not required to be purchased to satisfy the exchange, only the amount needed to satisfy the value requirement.
The 95% Exception - Any number of replacement properties if the fair market value of the properties actually received by the end of the exchange period is at least 95% of the aggregate FMV of all the potential replacement properties identified. In other words, 95% (or all) of the properties identified must be purchased or the entire exchange is invalid.
You can read the exact text of the applicable Treasury Regulations in our 1031 Identification Primer.
Start Your Exchange: If you have questions about how many replacement properties you can exchange into, feel free to call me at 612-643-1031.
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