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.
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