Who Should you Identify Your Property To in a 1031 Exchange?

Typically, taxpayers conducting 1031 exchanges will send their completed and signed 1031 replacement property identification form to their qualified intermediary. That is the norm in the industry, however, under the Treasury Regulations, a taxpayer can technically identify to:

1. The person that is obligated to transfer the replacement property to the taxpayer (such as the seller of the Replacement Property if you have signed a purchase agreement to buy the replacement property);

2. Any other person involved in the exchange other than the taxpayer or a disqualified person.

A Word of Warning

Your real estate agent, attorney or accountant may be involved in your exchange, but these people are probably disqualified because they are acting as your agent or employee. Also people that you are “related” to you by familial relation or business relationships [set out in IRC Section 267(b) or 707(b)] such as business partners are also disqualified.

If there is a title company or escrow company involved in your exchange, that title company or escrow company could theoretically be sent your 1031 replacement property identification form, and they likely would not be considered to be your agent, so that could be sufficient.  However, the better practice is to send the identification to your qualified intermediary. 

• Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2021 Copyright Jeffrey R. Peterson All Rights Reserved

5 Required Elements for a Valid 1031 Exchange Property Identification

As we’ve discussed many times before, there are numerous rules you have to abide by in order to execute a successful 1031 exchange and defer your capital gains taxes. One of the most important areas to be aware of in this realm is property identification. In this article, we are going to discuss five required elements for a valid property identification in a 1031 exchange of real estate.

1031 Exchange Property Identification

In a 1031 exchange, your replacement properties should be:

1. Clearly and specifically (unambiguously) designated

2. In writing

3. To the qualified intermediary (or other person involved in the exchange who is not disqualified)

4. Using the postal address(es) of the property (including House/Building Number, Street Name, City, County, State, and Zip Code), and/or the complete legal description (including the Metes and Bounds description, or Lot and Block or Other Subdivisions, or Condominium Unit Number and Name) and/or the County Tax Assessor's Parcel Number (APN, PID or Property Tax Identification Number) or you can use the property’s distinctive name, such as “The Empire State Building”

5. Sent before Midnight of the 45th day after the closing of the sale of your relinquished property

Generally, the more specific the identification the better. The more general or less specific, the more risk that the 1031 exchange could be disallowed during a federal or state audit.

• Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2021 Copyright Jeffrey R. Peterson All Rights Reserved

Can I Revoke or Revise My 1031 Exchange Property Identification?

Many taxpayers considering a 1031 exchange want to know if they can change their property identification at any point throughout the exchange process. That’s our topic for today’s article.

The First 45 Days

During the first 45 days after the closing of your relinquished property (the Identification Period), you are free to revoke or change your 1031 Replacement Property Identification provided that it is done in writing, signed by the taxpayer and it is sent to the qualified intermediary (or other person involved in the exchange that is not disqualified) that you identified to previously.  If you do revise your Identification to add new properties to your list (to remove and replace other previously listed properties), then you may want to make it clear that your subsequent Identification supersedes and replaces any prior designations by writing that on the last Identification. Otherwise, it may be unclear if your subsequent Identification is intended to add more properties (potentially pushing you over the Three-Property Rule or 200% Rule).

After Day 45

After the 45th day of the exchange, the only properties that will be considered like-kind (once the 45th day has elapsed and the Identification Period is over) are those properties that were properly designated. You are not allowed to change your 1031 Replacement Property Identification after the 45th day, so if a better property comes along that you would prefer to purchase, you are S-O-L (Statutorily Out of Luck).

• Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2021 Copyright Jeffrey R. Peterson All Rights Reserved

The 45 Day Identification Period in a 1031 Exchange

Identifying replacement property is an important aspect of any 1031 exchange. In this article, we are going to discuss the relevant rules and tips for identifying replacement property in a 1031 exchange.

Identification Rules

Any replacement properties received within the 45 day identification period are deemed to have been identified. Replacements received after the 45th day must be properly identified in writing during the 45 day identification period. You only need to satisfy one of these rules :

• 3-PROPERTY RULE: Identify three or fewer replacements. Most common Identification rule utilized.

• 200% RULE: Identify any number of replacements; however, the total value of those properties identified may not exceed 200% of the value of your relinquished property.

• 95% RULE: Identify any number of replacements as long as you end up receiving at least 95% of the value of all properties identified. Note: This rule is not used very often.

Consequences of Conducting a Partial Exchange and Receiving a Portion of the Proceeds or Other Property

If you receive money or non like-kind property (“boot”) in an exchange on which you realize a gain, you have a partially nontaxable exchange. You are taxed “dollar for dollar” on the gain you realize, but only to the extent of the money and the fair market value of the non like-kind property that you receive.

Need Help With Your Commercial Transaction?

Are you struggling with the details of your commercial real estate transaction? We’re here to help. The experts at CPEC1031 have decades of experience in the commercial title industry. Our team consists of underwriters, title closers, escrow agents, and more who are ready to guide you through the specifics of your transaction. Reach out to us today at our office in downtown Minneapolis to learn more about our services, capabilities, and how we can help you through the details of your transaction.

• Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2021 Copyright Jeffrey R. Peterson All Rights Reserved

In a 1031 Exchange, Do you Need to Receive All Identified Properties?

Property identification is one of the most difficult parts of a 1031 exchange. You want to make sure you find the right property for your needs and that the properties you identify fulfill the requirements of your 1031 exchange. In this article, we are going to talk about whether or not you need to receive all of your identified properties in a 1031 exchange of real estate.

Property Identification

Identifying your replacement property is an essential step in any 1031 exchange of real property. The first 45 days of your exchange period are set aside as your identification period. This is the time in which you have to identify in writing those replacement properties into which you want to exchange. Sometimes taxpayers will identify numerous properties during their identification period to keep their options open. But do you have to ultimately exchange into all of these properties when your exchange period comes to an end?

Identification Rules

If you are identifying property using the three property rule or the 200% rule, you do not have to exchange into every single property you identify. However, if you are using the 95% rule, you do need to exchange into at least 95% of the properties you identify during your identification period.

Commercial Real Estate Exchanges

A 1031 exchange can be nerve-wracking for first-timers and veterans alike. But having a skilled 1031 professional by your side will put your nerves at ease. The qualified intermediaries at CPEC1031, LLC have over two decades of experience facilitating exchanges for taxpayers throughout the United States. Our team can help prepare your documents, advise you on replacement properties, and answer all of your questions throughout the process. Contact us today to learn more about the 1031 exchange process and get your real estate exchange in the works!

• Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2020 Copyright Jeffrey R. Peterson All Rights Reserved