Guidelines Continued
- Identification Rules
Identification of all potential replacement property is required on day 45 of the exchange. Identification must be in writing and the description of the properties must be unambiguous. The IRS provides two rules for identifying replacement property:- The 3 Property Rule – The 3 Property Rule allows for identification of any three properties, of any price, anywhere in the United States.
- The 200% Rule - The 200% Rule is an option for identifying more than three properties. With the 200% Rule four or more properties can be identified, however the combined value of all properties identified can not exceed 200% of the property sold. For example:
- Investor A sells a rental home for $500,000. Investor A can identify ten $100,000 rentals, five $200,000 rentals or any combination of properties, provided the aggregate value does not exceed $1,000,000.
Asset Exchange Company provides all clients with an identification form. Click here for a sample identiification form.