By Orrin Barrow, Vice President
Kay Properties & Investments, LLC The 1031 rules state that you have EXACTLY 45 days after the date of sale to identify property and EXACTLY 180 days to complete the sale of that property. Within your 45 Days Identification window you can utilize three permissible identification methods. The first and most common for traditional 1031 exchanges are “the three-property rule” This states that you can identify 1, 2 or 3 properties, regardless of value. The policies also state that while using the three-property rule, you are not obligated to purchase all of the properties identified. You can purchase 1,2 or all three properties at your discretion. The second rule that many DST investors utilize is the “200% rule.” This rule stipulates that you can identify up to 200% of the value of your relinquished property. For example, if you sell your relinquished property for $1 million you have the opportunity to identify up to $2 million worth of property. DSTs investors often utilize the 200% rule because their DST choices for a diversified portfolio 1031 solution exceed the three-property rule. The last ID rule that exchangers can utilize is the “95% rule.” This rule states that you as an exchanger can identify more than three properties with a total value that is more than 200% of
the value of the relinquished property, but only if the investor acquires at least 95% of the value of the properties they have identified.
It is imperative that you as an exchanger understand how the rules work. One of the reasons is to make sure that you’re in line with IRS guidelines with the guidance of the qualified intermediary. It should also be noted that if you are looking to remove any of your 1031 exchange proceeds from your QI / Accommodator you must do so before your 45 Day Deadline. Due to regulation, once an exchanger passes the 45th ID deadline date, they must either invest their proceeds into properties that have been identified, or the QI will withhold the proceeds until after the 180th day. Once the 180th day is reached, funds will be released back to the exchanger and the investor will likely be liable for the taxes they owe on the amount that was received. If you would like more guidance or suggestions on your upcoming 1031 exchange please feel free to contact Kay Properties and Investments, LLC. We will promptly have a representative contact you to walk you through the steps to have a successful exchange.
