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Q. How many properties may I identify?
A. It is important that you identify the right properties, or you may lose
the benefit of the exchange. The rules can get a bit complicated, but the
following three rules cover most situations:
The Three Property Rule. You can identify any three properties, regardless of
their value. As long as you acquire one, two, or all three of these properties
with exchange funds, you will have satisfied the exchange requirements.
Thus, you could identify:
10 Yellow Street, New York, NY
15 Green Street, Los Angeles, CA
20 Blue Street, Macon, GA
You could then acquire any, all, or any combination of these properties with
exchange funds and, assuming you met all other requirements, your identification
would be correct.
The 200% Rule. You can identify any number of properties, so long as their
total value did not exceed twice the value of the property you give up. Thus, if
you give up a property worth $100,000.00 you could identify:
Lot A worth $ 5,000.00
Lot B worth $ 7,500.00
Lot B worth $10,000.00
Lot C worth $20,000.00
Lot D worth $30,000.00
Lot E worth $40,000.00
House worth $87,500.00
Total $200,000.00
You must acquire some combination of these properties with the exchange funds
to satisfy the identification requirements.
The 95% Rule. You can acquire any number of properties worth any amount of
money as long as you acquire them all. This is because of the 95% rule which
says that regardless of the number of the properties identified, and regardless
of the worth of the properties identified, if you acquire enough of the
identified properties to make up 95% of the aggregate value of the properties
identified, your identification will qualify.
These rules can be trickier than they appear. Get sound advice from a
licensed professional in applying them to your situation.
Rice & Stallknecht, P.C. would be honored to
assist you.
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