January Topic: 1031 Exchange Timelines & Identification Rules
A “Delayed Exchange” contains strict timelines which must be met for an exchange to be valid.
The 45 Day Identification Period
Begins the day the Relinquished Property is transferred by the Exchangor, usually considered the closing of escrow. An Exchangor has 45 days to identify a replacement property.
180 Day Exchange Period
Also begins the day the Relinquished Property is transferred by the Exchangor. The Exchangor has 180 days to complete the exchange.
These timelines cannot be extended unless an investor’s exchange is effected by a federally declared disaster.
Identification of Replacement Property
The identification must be sent or delivered in writing by the Exchangor to someone involved in the exchange who is not a disqualified party. For an identification to be valid it must be received by a qualified party my midnight the 45th day. Identifications are usually made to the Facilitator.
Properties must be “unambiguously” identified by address or legal description.
The taxpayer may identify:
a. Up to three properties of any value, or
b. Any number of properties providing the total value of all the identified properties does not exceed 200% of the fair market value of all property relinquished.
c. If more than three properties are identified and they exceed 200% of the relinquished property’s value, 95% of the aggregate value of the properties identified must be acquired.
Today more than ever the 45th day is critical. At that date you must be committed to completing the exchange, because any property ID’d must be acquired before any residual exchange funds can be dispersed.
If property is ID’d that is not desired, any remaining exchange funds will be locked in the exchange account until day 181. Therefore if property has been ID’d that is not desired, the identification form should be rescinded before midnight the 45th day.
See our flyer on when funds can be received in an exchange for further details.
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