Identifying replacement property is one of the most challenging aspects of a 1031 exchange. Finding the right property and making sure you satisfy all the necessary requirements can be difficult and may discourage some people from engaging in like-kind exchanges. In this article, we are going to review the three replacement property identification rules when it comes to 1031 exchanges of real estate. The person conducting the exchange needs to satisfy at least one of these rules when identifying replacement property in an exchange.
3 Property Rule
The three property rule is the most commonly used identification rule in 1031 exchanges. It states that you can exchange into up to three replacement properties (regardless of their value).
200% Rule
If you want to exchange into more than three replacement properties, you can use the 200% rule. This rule states that you can identify as many replacement properties as you wish, so long as the total aggregate value of those properties does not exceed 200% of the value of your relinquished property.
95% Rule
This is the final and least common identification rule used in 1031 exchanges. The 95% rule states that you can identify as many properties as you like as long as the replacement properties actually acquired amount to at least 95% of the fair market value of all identified properties.
CPEC 1031
CPEC1031 facilitates like-kind exchanges for investors of all sizes. We have more than twenty years of experience acting as qualified intermediaries for clients across the United States. Contact us today to learn more about our services and how we can help you through your exchange. You can find us at our primary office in downtown Minneapolis, or at one of our satellite offices around the country.
Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.
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