Time Periods

There are two critical time periods with respect to an exchange under Internal Revenue Code Section 1031.  The first is that the Investor must identify the Replacement Property to be received in the exchange within 45 days following the sale of the Relinquished Property.  The second is that the Investor must acquire the Replacement Property within the earlier of (i) 180 days following the sale of the Relinquished Property or the due date (including extensions) of the Investor’s tax return for the year in which the sale took place.

Identification Period

The Investor must identify the Replacement Property to be acquired in the exchange by midnight on the 45th day following the transfer of the Relinquished Property.  The number of properties that an Investor can identify as part of the exchange must comply with one of the following three identification rules:

Number of Properties that Can be Identified

  1. Three Property Rule. The Investor may identify any three properties, without regard to their fair market value and without regard to how many of the identified properties are ultimately acquired as part of the exchange.
  2. 200% Rule. The Investor may identify any number of properties provided that the aggregate fair market value (i.e. listing price) of the identified properties does not exceed 200% of the fair market value (i.e. selling price) of the Relinquished Property.
  3. 95% Rule. The Investor may identify any number of properties of any value provided that the Investor receive at least 95% of the aggregate fair market value of all identified properties by the end of the Exchange.  The fair market value of property is determined as of the earlier of the date the Replacement Property is received by the Investor or the last day of the 180 day exchange period and without regard to any liabilities secured by the property.

Contents of Identification

The Identification must contain an unambiguous description of the Replacement Property to be acquired and must be signed by the Investor.  A copy of the fully executed Purchase and Sale Agreement for the Replacement Property may satisfy this requirement.  In case of real property, the identification must include the legal description and/or a street address.  Additionally, if improvements to the Replacement Property are going to be made during the Exchange Period, the identification must include a description of the improvements with as much detail as is available at the time the identification is made.

How Made.

Identification of the Replacement Property to be received in the exchange must be made within the Identification Period by at least one of the following methods:

  1. Completing the purchase of the Replacement Property prior to the expiration of the Identification Period; or
  2. Complete a written identification that is signed by the Investor and received by the Intermediary or other qualified person prior to the expiration of the Identification Period.  Examples of parties other than the intermediary that are qualified to receive the exchange include the seller of the identified Replacement Property or the settlement agent or escrow officer that will handle the closing of the Replacement Property.

Click here to see Sample Identification Forms

Exchange Period

The Investor must receive the Replacement Property within the earlier of 180 days after the date on which the Investor transferred the Relinquished Property (i.e. the closing date for the sale of the Relinquished Property), or the due date (including extensions) for the Investor’s tax return for the tax year in which the transfer occurs.

Notice:
The actual deadline for completing an exchange is the earlier of either 180 days from the date on which the Exchanger transfers the relinquished property, or the due date, including extensions filed by the Exchanger, for the Exchanger’s tax return for the year of the transfer of the relinquished property. Consult your tax advisor regarding your tax filing requirement dates.