In a 1031 exchange, if you are parking the replacement property, the value of the identified relinquished properties cannot exceed 200% of the value of the replacement property.
Revenue Procedure 2000-37 states that:
No later than 45 days after the transfer of the replacement property to the EAT, relinquished property must be identified in a manner consistent with the principles for identifying replacement property found in Treasury Regulation 1.1031(k)-1(c)(4).
The general consensus in the exchange industry is that an exchangor may identify more than one relinquished property, but the maximum number of relinquished property ties that a exchangor may identify is either three properties (determined without regard to the properties' fair market value) or any number of properties so long as the aggregate fair market value of the properties at the end of the identification period does not exceed 200 percent of the aggregate fair market value of the properties as of the date transferred. An exchangor may properly identify alternative and multiple properties.
In a typical forward exchange, identification is done in conformity with Section 1031(a)(3) that provides that replacement property received by the taxpayer is not treated as like-kind property if it:
(a) is not identified as property to be received in the exchange on or before the day that is 45 days after the date on which the taxpayer transfers the relinquished property (the “45-day identification period”); or
(b) is received after the earlier of the date that is 180 days after the date on which the taxpayer transfers the relinquished property, or the due date (determined with regard to extensions) for the transferor's federal income tax return for the year in which the transfer of the relinquished property occurs.
Treasury Regulation 1.1031(k)-1(c)(4)(i) states that a taxpayer may identify more than one replacement property. Regardless of the number of relinquished properties transferred by the taxpayer as part of the same deferred exchange, the maximum number of replacement properties that the taxpayer may identify is:
(A) Three properties without regard to the fair market values of the properties (the "3-property rule"), or
(B) Any number of properties as long as their aggregate fair market value as of the end of the identification period does not exceed 200 percent of the aggregate fair market value of all the relinguished properties as of the date the relinquished properties were transferred by the taxpayer (the "200-percent rule").
Further, Treasury Regulation 1.1031(k)-1(c)(4)(ii) states that:
If, as of the end of the identification period, the taxpayer has identified more properties as replacement properties than permitted by paragraph (c)(4)(i) of this section, the taxpayer is treated as if no replacement property had been identified. The preceding sentence will not apply, however, and an identification satisfying the requirements of paragraph (c)(4)(i) of this section will be considered made, with respect to:
(A) Any replacement property received by the taxpayer before the end of the identification period, and
(B) Any replacement property identified before the end of the identification period and received before the end of the exchange period, but only if the taxpayer receives before the end of the exchange period identified replacement property the fair market vlaue of which is at least 95 percent of the aggregate fair market value of all identified replacement properties (the "95-percent rule").
For this purpose, the fair market value of each identified replacement property is determined as of the earlier of the date the property is received by the taxpayer or the last day of the exchange period.
Treasury Regulation 1.1031(k)-1(c)(4)(iii) states that for purposes of applying the 3-property rule, the 200-percent rule, and the 95-percent rule, all identifications of replacement property, other than identifications of replacement property that have been revoked in the manner provided in paragraph (c)(6) of this section, are taken into account.
For example, if, in a deferred exchange, B transfers property X with a fair market value of $100,000 to C and B receives like-kind property Y with a fair market value of $50,000 before the end of the identification period, under paragraph (c)(1) of this section, property Y is treated as identified by reason of being received before the end of the identification period. Thus, under paragraph (c)(4)(i) of this section, B may identify either two additional replacement properties of any fair market value or any number of additional replacement properties as long as the aggregate fair market value of the additional replacement properties does not exceed $150,000.
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