2 Effective Identification Rules That You Can Apply to 1031 Exchanges

To accomplish a 1031 exchange successfully you must have a clear understanding and also comply with all the major 1031 exchange identification rules. You may think of the rule to be complicated, but that is not the case. That said, being unable to follow the rules may completely ruin your exchange plan. In this blog post, we talk about the two most important rules that you should be aware of while identifying a 1031 replacement property in Utah or elsewhere for an exchange.

Deadline and General Rules: The taxpayer gets up to 45 days right from the date the surrendered (relinquished) property inches closer to identifying the property that he or she intends to obtain by the way of exchange. If there are multiple properties that need to be relinquished in the process, the 45 days can be measured right from the date of the closure of the very first relinquished property. The property that has been identified in the exchange does not need to be under the influence of a contract. Also, the taxpayer is not required to obtain or acquire everything that he or she identifies. That being said, it is essential to note that the taxpayer is not permitted to acquire anything accept the identified property. Failure to fully comply with the identification rules would ruin the entire exchange plan. Keep that in mind and act accordingly.   

200 Percent Rule: If any taxpaying individual wants to consider or identify more than three properties at one time, he or she can make use of the 200 percent rule. This rule states that the taxpaying individual can identify multiple number of replacement properties provided the total fair market value of what is identified is strictly greater than 200 percent of the market value of what was sold as the surrendered property. Many of the reputed institutes for the field recommend taxpayers create a cushion by identifying the exchangeable properties that are less in value than what is allowed to be sold. For cases when properties are determined (at a later stage) to have a greater value than what was predicted originally, this can be applied successfully.