In a 1031 exchange, regulations create and define an identification period and a exchange period (Reg.§ 1.1031(k)-1(b)(3). These periods are absolute. If the time requirements are not met, the exchange will be disallowed.
The identification period begins on the date the taxpayer transfers the relinquished property and ends at midnight on the 45th day thereafter. The counting of the 45 days begins on the day after the date of transfer. This is illustrated in the examples in the regulations (Reg. § 1.1031(k)-1(b)(3). In the case of a reverse exchange, possible relinquished (properties to be sold) are identified.
The identification is generally delivered to the intermediary in the form of a letter or a completed form signed by the exchanger and stamp dated.
Exceptions: The taxpayer may be entitled to a postponement if the IRS publishes a notice or issues guidance providing relief with respect to a federally declared disaster, or a terroristic or military action. The “affected taxpayers” will be defined in the guidance. Rev. Proc. 2007-56 provides postponed time periods for military service in a combat zone.
Date of Transfer Caveats: For federal income tax purposes, ownership of real property is transferred upon the transfer of the “benefits and burdens” of ownership. Sales disguised as leases or option arrangements could preclude deferring gain under IRC § 1031. “Land Sale Contracts” are regarded as transfer of beneficial title.
Please call our office for more information regarding your identification. We have forms for your identification and signature.
- Return the identification form back to us early enough so we can review before the expiration of the 45 day deadline. If you make a mistake and do not give us time to review, there is nothing we can do.
- Improper identification of your replacement property or relinquished property can disallow your exchange.
- If you identify properties and then decide not to complete the exchange, you must with draw your identification before the end of the 45 days if you want to receive your exchange funds before the end of the 180 day exchange period.
- If you are executing a Reverse Exchange, verify the name(s) of the legal titleholder of the property to be relinquished. The Replacement property must be purchased by the same taxpayer.
- It is safest to limit your identification to 3 U.S. properties. If you plan to identify more than 3 properties under the 200% rule, please review this method with us well in advance. The rule is quite a bit different than the 3 property rule.
- Include for each identified property TWO of the following items for that property (if possible):
- Street Address
- Legal Description
- Assessor’s Tax Acct # (For land transactions, you can identify using a survey plat or even Google Earth)
- Make sure that each property that you identify has only one assessor’s parcel number or that property may be deemed to be several properties.
- If you plan to acquire less than 100% of an identified property (a fractional share), such as a Co-Tenancy interest, you must identify the fractional share of the property. Please review with us.
- If you plan on building or otherwise adding improvements to the replacement property and want to use exchange funds to do so, these improvement must be identified. This exchange must also be set up as an Improvement Exchange. This takes additional planning and additional fees. You must call us well in advance to set up correctly or the improvements will not be allowed within the exchange.
- Do not identify a property owned by a related party unless you ask us first.
- Real Property cannot be exchanged for Personal Property.
- Do not identify property that you intend to occupy as a personal residence or plan to market immediately. Your intention at time of purchase must be to hold as an investment or use in a business or trade.
We must receive your identification letter via registered mail or fax or hand delivered. Call us if you fax the letter. It is imperative that we are able to verify the receipt of your fax before the deadline.