How Many Replacement Properties can you 1031 Exchange Into?

how many replacement properties can you 1031 exchange into

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.

2 Options

One way to buy numerous replacement properties without restriction on number or value is to close on all of them within the first 45 days after the date of the closing of your relinquished property. This is because you are deemed to have identified any replacement properties that you actually close on and receive within the first 45 days, and that way you do not have to make a written designation or replacement property Identification (if you complete the purchases within the first 45 days).

Another option if you are going to purchase a large number of replacement properties after the 45th day, then you are permitted to designate your replacement properties under the little known and rarely utilized 95% Rule.  Under this rule you are allowed to designate or identify any number of replacement properties, however, in order for the identification to be considered valid, you must actually purchase and receive within the 180 day exchange period 95% of the value of those designated properties. That can be a real challenge.  

If the above two options of closing within the first 45 days or utilizing the 95% Rule do not work for you, then you are restricted to identifying under either the Three Property Rule (any three properties, regardless of value) or the 200% Rule (which caps the number of designated properties to an aggregate of twice the value of your relinquished property).

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.

  • 1031 Hotline: 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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