The identification period in an ideal 1031 exchange begins on the day when the relinquished property is sold and ends at midnight on the 45th day. As soon as you identify a suitable replacement property, you must send in an identification. Not to mention, you can always change your identifications during the identification period.
How to identify?
To qualify for a 1031 exchange, the investor must:
- Identify replacement property in a written document and sign it.
- Send the written identification to the Qualified Intermediary on or before the 45th day.
The document must contain the legal description of the replacement property, including the street address. The property type must be described in a personal property exchange.
If you’re acquiring a property that is being constructed, then you must identify the property and the improvements in as much detail as possible. In case you want to purchase less than a 100% ownership interest in the replacement property, then you must mention the exact interest percentage. It’s recommended that you consult your tax or legal advisor regarding specific identification rules and restrictions.
During your identification period, you can substitute new replacement property by revoking the previous identification and correctly identifying new replacement properties in writing.
Property Rules for identification
Although you can identify one or more replacement properties, the maximum number of properties that can be identified is limited to:
- Three Property Rule: You can identify up to three replacement properties irrespective of their fair market value;
- 200% Rule: Any number of replacement properties can be identified so long as the combined market value of all identified properties does not exceed 200% of the fair market value of the relinquished property;
- 95% Rule: You can identify any number of replacement properties as long as the value of the acquired properties is at least 95% of the fair market value of all identified properties.