Example of 1031 Exchange Identification Rules
If an investor sells a property for $1,000,000, their identification options are:
- Three-Property Rule – Identify up to three properties of any value.
- 200% Rule – Identify more than three properties, but their total value cannot exceed $2,000,000.
- 95% Rule – Identify any number of properties but must acquire 95% of the total identified value.
What Happens If You Miss the 45-Day Deadline?
Failing to meet the 1031 exchange identification deadline can disqualify the exchange, meaning:
- The investor will owe capital gains taxes on the sale.
- They may also be subject to depreciation recapture taxes.
- The exchange will no longer be IRS-compliant, requiring full tax payment on the gain.