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Identification Rules

The identification period in an IRC Section 1031 delayed exchange begins on the date the taxpayer transfers the relinquished property and ends at midnight on the 45th calendar day thereafter. To qualify for a 1031 tax-deferred exchange, the tax code requires identifying replacement property:

    • In a written document signed by the taxpayer;
    • Hand-delivered, mailed, telecopied, or otherwise sent;
    • Before the end of the identification period (within 45 calendar days);
    • To either the person obligated to transfer the replacement property to the taxpayer (generally the qualified intermediary) or any other person involved in the exchange other than the taxpayer or a disqualified person.

The replacement property must be unambiguously described (i.e. legal description, street address or distinguishable

Additional Issues

Taxpayers acquiring real property which is being constructed must identify the real property and the improvements in as much detail as is practical at the time the identification is made. Taxpayers who intend to acquire less than a 100% ownership interest in the replacement property should specify the specific percentage of interest. Taxpayers should always consult with their tax and/or legal advisors about the specific identification rules and restrictions.

Any properties acquired by the taxpayer within the 45-day identification period are considered properly identified. A taxpayer has the ability to substitute a new replacement property or properties by revoking a previous identification in the same manner as originally identifying and subsequently identifying new replacement properties as long as this is done, in writing, within the 45-day identification period. Although taxpayers can identify more than one replacement property, they must adhere to one of the three rules of identification listed below:


    1. Three replacement properties without regard to their fair market value (“3 Property Rule”);
    2. Any number of replacement properties so long as their aggregate fair market value of all replacement property
      does not exceed 200% of the aggregate fair market value of all relinquished properties (“200% Rule”);
    3. Any number of replacement properties without regard to the combined fair market value, as long the replacement properties acquired amount to at least ninety-five percent of the fair market value of all identified properties (“95% Rule”).