What You Need to Know to Do It Right
“Identification” in an IRC Section 1031 exchange means that the exchanger must describe, in writing, the property or properties that they intend to purchase as replacement property in the exchange. The Treasury Regulations governing exchanges set forth specific rules for identification.
Here’s what you need to know to do it right:
HOW TO IDENTIFY REPLACEMENT PROPERTY
The identification notice must be in writing. And, it must be signed by all exchangers and it must be dated. It cannot be signed by the exchanger’s broker, agent or other party in the transaction.
Additionally, the identification must be sent to someone that is not disqualified on or before the 45th day after the sale of the property relinquished in the exchange.
Examples of parties to whom you may send your identificationare as follows:
Parties who are disqualified and to whom you may not send your identification to are as follows:
Failure to send a written identification notice to a qualified recipient on or before the 45th day is fatal to your exchange.
RESTRICTIONS ON THE NUMBER OF PROPERTIES TO BE IDENTIFIEDYou are restricted in the number of properties that you are allowed to identify. Your choices are as follows:
DESCRIBING THE REPLACEMENT PROPERTYThe property should be described as unambiguously as possible, using a street address, city and state OR a legal description ORa tax parcel number, city and state.If you are describing personal property, you should use a specific description of the particular type of property, for example, a truck should be described by specific make, model and year.If you are acquiring less than 100% interest in a particular property, you should indicate the % interest you intend to acquire.
REVOKING THE IDENTIFICATION NOTICE
If you wish to revoke an identification notice that you have already sent, you must do so on or before the 45th day of your exchange and you must do so in the same manner (i.e. in writing, signed by all exchangers and dated) in which you originally identified and you must send it to the party to whom you originally identified before the 45th day of your exchange.