Talk to an Advisor

Identification Statement

An Identification Statement refers to the official document or written statement in which the investor identifies potential replacement properties. Under Section 1031 of the United States Internal Revenue Code, this statement is a crucial part of a like-kind exchange, which allows an investor to defer capital gains taxes when they sell an investment property and reinvest the proceeds from the sale within certain time limits in a property or properties of like kind and equal or greater value.

Here are a few key points about the Identification Statement:

  1. Timing: The Identification Statement needs to be presented within 45 days of the sale of the relinquished property.
  2. Format: It must be written, signed by the investor, and delivered to a person involved in the exchange like the seller of the replacement property or the qualified intermediary.
  3. Content: It must unambiguously describe the replacement property or properties. This can include a specific address, distinguishable name, or legal description of the property.
  4. Limits: There are certain restrictions on the number and/or total value of potential replacement properties that can be identified. These are typically represented by one of three rules: the 3-property rule, the 200% rule, or the 95% rule.

Please note that it’s essential to meet all these requirements; failure to do so can result in the disqualification of the 1031 exchange, leading to the investor owing capital gains taxes.