How to Identify Replacement Property in a 1031 Exchange

Identification is the most binary moment in a §1031 exchange. Either the written identification reaches the Qualified Intermediary by end of day 45 with a compliant property list, or the exchange fails. The IRS does not extend the 45-day window for taxpayer convenience, weather, hospitalization, or QI service failures — only narrow disaster declarations under Section 7508A. The procedural rules around what counts as identification, how many properties can be named, and how specific the description must be all matter equally.

The Written-Identification Requirement (Email, Fax, Letter)

Treasury Regulation §1.1031(k)-1(c)(2) requires identification to be in writing, signed by the taxpayer, and delivered to the QI (or another permitted recipient) on or before midnight of day 45. Acceptable delivery methods:

• Email. Email with the identification attached as a PDF or stated in the body, sent to the QI's exchange coordinator, with delivery time stamped. The email should include the exchange file number, taxpayer name, and signature (typed or imaged).
• Fax. Fax to the QI's identification line, with confirmation page retained. Faxes were standard before email and remain valid.
• Mail. Postmarked on or before day 45 and addressed to the QI. Mail-delivered identifications are riskier because of postal delays; email is preferred.
• Hand delivery. Physical delivery to the QI's office on or before day 45.

The identification must be delivered to a permitted recipient. Treasury Regulation §1.1031(k)-1(c)(2) permits the QI, the seller of the replacement property, and certain other parties — but excludes anyone who is a "disqualified person" under §1.1031(k)-1(g)(4), including the taxpayer's own attorney, CPA, or broker (within the two-year lookback). In practice, the QI is the only safe recipient. Sending the identification only to the taxpayer's attorney or to the seller of the replacement does not satisfy the regulation in most cases.

Specificity — Address, APN, or Legal Description

The identification must describe each property "unambiguously" — Treasury Regulation §1.1031(k)-1(c)(3). The standard descriptions:

• Street address. "1234 Main Street, Phoenix, AZ 85001." Acceptable when the address points unambiguously to one property.
• Assessor's Parcel Number (APN) or tax ID. "APN 162-22-101-013, Maricopa County, Arizona." More precise than street address and useful for properties without conventional street addresses.
• Legal description. "Lot 13, Block 5, Spring Valley Acres Subdivision, as recorded in Book 105, Page 67, Maricopa County Records." Used for raw land or where the address is ambiguous.
• Combination. Address + APN is the safest format, especially when the address is shared between multiple parcels or when the property is mid-subdivision.

Unit numbers matter for condominiums and DSTs. "Building B" is not enough; "Unit B-204" is required. For DSTs (Delaware Statutory Trusts), the identification typically uses the DST sponsor name + offering name + dollar amount of beneficial interest, since DSTs do not have a unit-level address.

The 3-Property Rule in Detail

The 3-Property Rule allows the taxpayer to identify up to three replacement properties without regard to total value. This is the rule most exchangers use. Mechanics:

• List 1, 2, or 3 properties on the identification.
• Total fair market value can be any amount — no cap.
• Close on any combination of the identified properties (one, two, or all three) within the 180-day window.
• Identification of a fourth property invalidates the 3-Property Rule and forces the taxpayer to comply with the 200% Rule or 95% Rule instead.

Use case: a taxpayer selling a $700K rental who plans to buy a single $1.2M replacement might identify three properties — a primary target and two backups — to preserve flexibility if the primary deal falls through.

The 200% Rule — When It Beats the 3-Property Rule

The 200% Rule allows identification of any number of replacement properties, provided total fair market value of the identified list does not exceed 200% of the relinquished sale price. Mechanics:

• Identify 4, 5, 10, or any number of properties.
• Sum the fair market value of all identified properties.
• If the sum is ≤ 200% of the relinquished sale price (gross, not net), the rule is satisfied.
• If the sum exceeds 200%, the entire identification fails — the exchange is dead unless the 95% Rule applies.

Use case: a taxpayer selling a $1M relinquished property who wants to acquire a portfolio of smaller replacements (5 properties at $300K each = $1.5M total = 150% of relinquished) uses the 200% Rule. The 3-Property Rule could not work here because more than three properties are needed.

The 95% Rule — Rarely Used, Sometimes Clutch

The 95% Rule allows identification of any number of properties of any total value, provided the taxpayer actually acquires properties whose value totals at least 95% of all properties identified. Mechanics:

• Identify any number of properties, no value cap.
• By day 180, close on properties whose combined fair market value totals at least 95% of total identified value.
• Falling short of 95% — even by a small amount — invalidates the entire exchange.

Use case: very rare. The 95% Rule is effectively a "buy almost everything you identify" requirement, and the failure mode (close one property short of 95% and the exchange dies) is severe. Most exchangers default to the 3-Property or 200% Rules.

Revocation and Re-Identification Within the Window

The taxpayer may revoke an identification and submit a replacement at any time before midnight of day 45. The replacement identification must be in writing, signed, and delivered to the QI by the day-45 deadline. After day 45, identifications are locked — no revocation, no addition, no change.

Best practice: identify on day 35–40, not day 1 or day 45. Identifying too early loses optionality; identifying on day 45 leaves no margin for transmission errors, missed signatures, or last-minute deal changes. The 5–10 day buffer between target identification day and the day-45 deadline is the operational sweet spot.

Simple 1031 LLC is a Qualified Intermediary. We do not provide tax, legal, or investment advice. The strategic choice of which properties to identify, the count rule to use, and whether the 95% requirement is achievable all involve judgment and risk that should be reviewed with your CPA and real estate counsel before submission. We document the identification, confirm receipt, and coordinate with the title company on the replacement closings.

Frequently Asked Questions