When you identify your replacement property in a 1031 exchange, you have three basic options:
You can use the three property rule that allows you to identify any three (or fewer) properties, regardless of their value. For example, you could identify the Sears Tower in Chicago, the IDS Tower in Minneapolis, and the Mall of America in Bloomington. Those are three distinct properties.
You can use the 200% rule, which allows you to list any number of properties in your identification. However, the value of all those identified properties cannot exceed twice the value of what you relinquished. Let’s say your relinquished property sold for $10 million. Under this rule, you could identify properties worth a total of up to $20 million. The problem with the 200% rule is that value is subjective. If you want to list the Foshay Tower in Minneapolis as a replacement property, how do you know how much it’s worth if you don’t have a contract price negotiated?
You can use the 95% rule. Under this rule you can list more than three properties and more than 200% in value, but you must purchase and actually receive 95% of all those identified properties.
Anything that you purchase and receive within the 45 day period will be considered identified by virtue of you having closed on it. So you don’t need to make a written identification if you’ve closed on the property within that 45 day period.
Don’t Miss Out on Capital Gains Tax Savings – Consider a 1031 Exchange!
If you’re selling investment real estate, don’t miss out on the capital gains tax savings offered by a 1031 exchange! Anyone can do a 1031 exchange so long as they hold qualifying real property. Work with a 1031 intermediary at CPEC1031, LLC to acquaint yourself with the like-kind exchange process and see if your property is a good candidate for 1031 treatment. We have over two decades of experience in the 1031 exchange industry and can help you defer your capital gains taxes in a like-kind exchange transaction. Contact us today at our Twin Cities office to get started!
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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