Which Rule Limits the Number of Replacement Properties?
The identification limits apply to the complete list of replacement properties identified in the same deferred exchange. You need to meet one of the permitted identification standards, not all of them. The count and valuation rules are separate from the other 1031 exchange rules and requirements.
| Identification standard | What it allows |
|---|---|
| Three-property rule | Identify up to three replacement properties, regardless of their total fair market value. |
| 200% rule | Identify four or more properties if their combined fair market value does not exceed 200% of the fair market value of all relinquished properties in the exchange. |
| 95% exception | If the list exceeds the limits above, the identification may still work for qualifying property received by the deadline if at least 95% of the total identified value is acquired, subject to the regulation’s requirements. |
The 95% exception is not permission to list unlimited properties and later buy only a favorite. If you exceed both ordinary limits, the identification is generally ineffective unless an exception applies. Property actually received during the 45-day identification period has a separate rule.
How Does the 200% Rule Work With Four Properties?
Hypothetical example: You sell investment real estate with a fair market value of $1,000,000. Under the 200% rule, you can identify four potential purchases valued at $400,000, $450,000, $500,000, and $550,000. Their combined value is $1,900,000, below the $2,000,000 identification limit. You could acquire one or more of these properly identified properties without being required to acquire all four.
But if one property on that list were worth $750,000 instead of $550,000, the aggregate would be $2,100,000. The list would fail the 200% test unless a qualifying exception applied. As a separate illustration, an excessive identification totaling $2,500,000 would generally require receipt of at least $2,375,000 of qualifying identified property to satisfy the 95% exception.
When several relinquished properties are part of one exchange, their aggregate fair market value is used. See our discussion of exchanging multiple 1031 properties for related planning considerations.
Do You Have to Buy Every Property You Identify?
No. A valid three-property identification can include a preferred property and backup choices. A valid 200% identification also allows you to acquire fewer than all properties listed. The amount ultimately acquired, reinvestment of exchange proceeds, and other transaction details affect whether gain is fully deferred, partially recognized, or recognized in full. The identification limit alone does not determine your tax result.
Investors considering several property types can review replacement property options while their tax and legal advisors evaluate the transaction.
When Can You Change the Identification List?
The signed written identification must generally be delivered to the qualified intermediary or another permitted exchange party within 45 calendar days after the relinquished property transfer. You can revoke an identification in writing within that period and submit a revised list that meets the limits. Once the deadline passes, you generally cannot add or substitute properties.
For the written notice requirements, see how replacement property must be identified. The replacement property must generally be received by the earlier of 180 days after the relinquished property transfer or the applicable tax return due date, including extensions. Use our 1031 exchange deadline calculator to plan, and confirm your dates with your qualified intermediary.