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What is the “45-Day Period” in 1031 Exchange?
According to the Section 1031 of IRC it is mandatory for an exchangor to “Identify replacement property within 45 days from the closing on the sale of the relinquished property.” This period is known as the “Identification Period”.
You as an exchangor for 1031 Exchange are required by the law to provide in writing, prior to midnight on the 45th day (after the close of the first relinquished property) an “unambiguous description” of the potential replacement property. A legal description or property address will suffice. If you want to identify or purchase multiple properties, you must follow one of the following requirements laid down by the IRS:
- You can identify up to three properties of any value with the intent of purchasing at least one of them
- You can identify more than three properties with an aggregate value that does not exceed 200% of the market value of the relinquished property
- You can identify more than three properties with an aggregate value exceeding 200% of the relinquished property, knowing that 95% of the market value of all properties identified must be acquired
A submitted purchase agreement is considered a sufficient identification. Any properties purchased and closed within the 45-day time period qualifies as an identification property.
