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Identification Period

In the context of a 1031 exchange (a tax-deferred exchange), the Identification Period is a specific, IRS-designated period during which the taxpayer who is selling their property (referred to as the “Relinquished Property”) must identify potential replacement properties.

This period begins on the day the taxpayer transfers their original property and ends 45 days later, including weekends and holidays.

During this time, the taxpayer must clearly identify potential replacement properties, either in a signed document given to the person obligated to transfer the replacement property or in a signed written agreement. According to the IRS rules, a taxpayer can generally identify up to three properties regardless of their market values (Three-property rule) or any number of properties whose aggregate market value does not exceed 200% of the value of all relinquished properties (200% rule).

The Identification Period is critical to a successful 1031 exchange. If the taxpayer does not identify a new property within this 45-day window, the exchange may not meet the IRS requirements for a tax-deferred treatment, potentially resulting in significant tax liability for the taxpayer.