Question of the Month: What Are the Rules for Identifying Replacement Property?

The absolute essence of any exchange is that something must be given away (relinquished property) and something must be received (replacement property). Property that is sold, and not exchanged, does not qualify. A property is disqualified even if the property has been sold inadvertently. Usually, the reason for the unintended sale is based upon the tax principal of “constructive receipt of funds.”

As an exchangor, you are required to provide an “unambiguous description” of the potential replacement property on or before the 45th day after closing on the relinquished property. A legal description or property address will suffice!

If you wish to identify or purchase multiple replacement properties, you must follow one of the following guidelines:

  • Identify up to three properties of any value with the intent of purchasing at least one.
  • Identify more than three properties with an aggregate value that does not exceed 200% of the market value of the relinquished property.
  • Identify more than three properties with an aggregate value exceeding 200% of the relinquished property, knowing that 95% of the market value of all properties identified must be acquired.

Read More

Still have questions about replacement property restraints? Give our experts a call at 800-735-1031.