You sold your property in a 1031 exchange and now the clock is ticking! You have only 45 days to identify your replacement property. That countdown starts the day after your relinquished property closes (the closing date is day 0). There are no extensions or exceptions (except in the case of some federally declared disasters). It’s important to remember that weekends and holidays count too.
3 Identification Rules in a 1031 Exchange
3-Property Rule. You may identify up to three properties and there is no value limit. You can purchase one, two, or all three properties within 180 days.
200% Rule. Identify any number of properties as long as their total value does not exceed 200% of what you sold. For example, if you sold $1 million, you can identify up to $2 million in total value.
95% Rule. If you go over both the 3-property and the 200% limits, you must acquire at least 95% of the total value identified. This rule is rarely used, but it can save a complex 1031 exchange.
How to Identify Your Property
Now that you know the identification rules, how do you go about actually identifying your property in a 1031 exchange?
In writing on the Replacement Property Identification Form, signed by you, and delivered to your Qualified Intermediary.
After Day 45, you cannot add or subtract properties.
If a deal falls through, or if a property is not on your list, it is too late.
After the sale date, you must complete the purchases within 180 days or before your tax return is due, whichever comes first.
Pro Tips for a Successful 1031 Exchange
Plan ahead and consult with your tax advisor, CPA, and your Qualified Intermediary.
Confirm your written notice (Replacement Property Identification Form) is received on time to your Qualified Intermediary.
Consider identifying “in the alternative” by listing Property A or B, not both.
Lock up a replacement property early by getting it under contract for purchase, or purchasing the property in a reverse exchange.
CPEC1031, LLC – Your Go-To Resource for 1031 Exchanges
At CPEC1031, LLC we are your go-to resource for all things related to 1031 exchanges. With more than two decades of experience under our belts, we have the knowledge needed to guide you through the complicated web of your 1031 exchange and ensure you are able to defer all of your capital gains taxes when it comes time to close on your replacement property. Give us a call today to learn more about the many benefits of section 1031 of the Internal Revenue Code and see if your property qualifies for like-kind exchange tax deferral.
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.
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