1031 Exchange Identification Rules
After you sell an investment property in a 1031 exchange, you must identify your replacement property (or properties) in writing within 45 days of closing. IRS rules give you three ways to do it: the 3-Property Rule, the 200% Rule, and the 95% Rule. Here's how each one works, with examples.
The Three-Property Rule
Identify up to three properties as potential replacements, regardless of their value. This is the most popular option because it's simple: you don't have to worry about the price of what you identify.
Example: You sell a rental for $500,000. You identify a $400,000 duplex, a $550,000 apartment, and a $300,000 commercial lot. Even though the combined value ($1.25 million) far exceeds your sale price, the identification is valid: three properties, no value limit.
The 200% Rule
Identify any number of properties, as long as their combined value doesn't exceed 200% of the relinquished property's sale price.
Example: You sell for $500,000, so all identified properties together can't exceed $1,000,000. You could identify four properties at $250,000 each. Identifying four properties is fine because the total ($1,000,000) hits exactly 200%.
The 95% Rule
Identify any number of properties at any value, but you must actually close on at least 95% of the total identified value for the exchange to hold.
Example: You identify five properties totaling $1,500,000. To satisfy the rule, you must acquire at least $1,425,000 worth of them. Because this is hard to guarantee, most investors use the 95% rule only in special situations.
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1031 Tracker Pro™ tracks identification and closing deadlines for every exchange automatically, with email alerts before time runs out.
How identification actually happens
- It must be in writing and signed by you
- It must be delivered to your Qualified Intermediary before midnight of the 45th day after closing the relinquished property
- Each property must be described unambiguously, typically by street address, or by legal description for unimproved land
- You can change your identification at any time before the 45th day. After that, it's locked
The 45-day deadline has no extensions: not for weekends, holidays, or failed deals. If the 45th day falls on a Sunday, identification is still due that day. Missing it disqualifies the entire exchange.
Never miss the 45-day deadline
1031 Tracker Pro™ tracks identification and closing deadlines for every exchange automatically, with email alerts before time runs out.