§1031 Identification Rules

Replace­ment prop­er­ty gen­er­al­ly must be iden­ti­fied in a signed writ­ten doc­u­ment and clear­ly described. For real estate, iden­ti­fi­ca­tion com­mon­ly uses a street address, legal descrip­tion, or oth­er unmis­tak­able descrip­tion.

Three-Property Rule

Iden­ti­fy up to three replace­ment prop­er­ties, regard­less of their fair mar­ket val­ue.

200% Rule

Iden­ti­fy more than three prop­er­ties if their com­bined fair mar­ket val­ue does not exceed 200% of the aggre­gate fair mar­ket val­ue of the relin­quished prop­er­ty or prop­er­ties.

95% Rule

If the oth­er iden­ti­fi­ca­tion lim­its are exceed­ed, an iden­ti­fi­ca­tion may still qual­i­fy in cer­tain cir­cum­stances if the investor receives, before the end of the exchange peri­od, iden­ti­fied replace­ment prop­er­ty worth at least 95% of the aggre­gate fair mar­ket val­ue of every­thing iden­ti­fied.

Because the 95% thresh­old is so high, it should not be viewed casu­al­ly as a gen­er­al iden­ti­fi­ca­tion strat­e­gy.

Key Point: Iden­ti­fi­ca­tion is about more than cre­at­ing a list. The prop­er­ties must be prop­er­ly and time­ly iden­ti­fied under the applic­a­ble rules.

Ref­er­ence Sources

• IRS — Instruc­tions for Form 8824

• 26 CFR §1.1031(k)-1 — Deferred exchange rules

Impor­tant: This mate­r­i­al is for edu­ca­tion­al pur­pos­es only and is not tax, legal, account­ing, or invest­ment advice. Sec­tion 1031 out­comes depend on the tax­pay­er’s facts and com­pli­ance with applic­a­ble require­ments.