Identification Rules
A 1031 exchanger must identify replacement property under one of three IRS rules: the Three-Property Rule, the 200% Rule, or the 95% Rule.
What it means
The three identification rules cap how many — and how much — replacement property a taxpayer can target on the 45-day identification form.
The Three-Property Rule (most common) allows identification of up to three properties, regardless of combined value. The 200% Rule allows any number of properties as long as their combined fair market value is no more than 200% of the relinquished property's sale price. The 95% Rule allows any number of properties with no value cap, but the taxpayer must actually close on 95% of the combined identified value — an edge-case rule and a common trap.
A taxpayer may only use one rule per exchange, chosen at the time of identification.
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