1031 exchange:
200 Percent Identification Rule

We often are asked to explain how the identification rules work for 1031 Exchange Replacement Property Identification. Here is a case of a 200% rule.

Dear 1031x:
I have used the 200% rule to identify more than three potential replacement properties. Subsequent to my identification one of the sellers increased the sales price such that the sum of the FMV of all identified properties no exceeds 200% of the FMV of the relinquished property. Will my exchange fail?

Dear Mr. A:
The regulation states that the FMV of the identified properties (in the 200% rule) will be measured on the date that the relinquished property is transferred by the exchanger. If one of the properties later increases in value such that the 200% rule is violated that is of no consequence.

Sincerely,
Steve Hickox
Attorney / President

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