In a 1031 exchange, the identification of a replacement property must be done within a specific timeframe known as the “Identification Period.” The Identification Period begins on the date of closing on the relinquished property and lasts for 45 calendar days.
Identification
During this 45-day period, you must identify potential replacement properties that you intend to acquire as part of the exchange. The identification must be made in writing and delivered to your Qualified Intermediary (QI). It’s important to note the following rules regarding the identification of replacement properties:
Three-Property Rule: You can identify up to three potential replacement properties without regard to their maximum market value. You can purchase one, two or three of those 3 properties identified.
Exceptions to the Three Property Rule:
200% Rule:
Alternatively, you can identify more than three potential replacement properties, but their total fair market value cannot exceed 200% of the fair market value of the relinquished property. If you identify more than three properties and they exceed 200% of the value, you must acquire at least 95% of the identified properties’ value.
95% Rule:
If you identify more than three potential replacement properties and their total fair market value is within the 200% limit, you must acquire properties with a total fair market value of at least 95% of the aggregate fair market value of all identified properties.
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