There are strict time frames pertaining to the identification and receipt of the replacement property for the completion of a delayed 1031 exchange.
1. 45-Day Rule For Identification: The first time restriction for a delayed exchange is for the taxpayer to either close on the purchase of the replacement property or to identify the potential replacement property(s) within 45 days from the date of transfer of the relinquished property. The identification notice must be by written document (the Identification Notice) signed by the taxpayer and received by the Qualified Intermediary by midnight of the 45th day. After 45 days have expired, it is not possible to close on any property which was not identified in the 45-day letter. Failure to submit the 45-Day Letter causes the Exchange Agreement to terminate and the QI will disburse all unused funds in their possession to the taxpayer.
Property Identification Rules
The numbers of potential replacement properties identified are subject to the following rules:
- Three Property Rule: Any three properties regardless of their market value.
- 200% Rule: Any number of properties as long as the aggregate fair market value of the replacement properties does not exceed 200% of the value of the relinquished property.
- 95% Rule: Any number of properties if the fair market value of the properties actually received by the end of the exchange period is at least 95% of the aggregate fair market value of all the potential replacement properties identified.
2. 180 Day Rule For Receipt Of Replacement Property:
The Replacement Property must be received and the exchange completed no later than:
- 180 days after the transfer of the relinquished property
- The due date of the taxpayer’s income tax return, including extensions, for the tax year in which the relinquised property was transferred.