Guides

The 45 Day Identification Period

The forty five day identification period is the first deadline in a Section 1031 exchange, and it generally begins the day after your relinquished property closes escrow. Within that window you must identify, in writing, the replacement property or properties you intend to acquire, and that notice must go to your Qualified Intermediary or another party involved in the exchange who is not treated as your agent. The identification generally must describe the property unambiguously, typically by street address or a legal description, and the forty five days run on calendar days, including weekends and holidays, with no extensions for market conditions. San Diego, CA investors selling in a competitive coastal or inland submarket sometimes underestimate how quickly this window closes once escrow records, especially when they are still touring net lease or multifamily replacement candidates. Because the timeline is unforgiving, we generally recommend investors begin building a replacement property shortlist before the relinquished property even closes, so the forty five day window is used to confirm and refine rather than to start from zero. Three identification paths are commonly used. The three property rule allows identification of up to three properties of any value. The two hundred percent rule allows more than three properties as long as their combined fair market value does not exceed two hundred percent of the relinquished property value. The ninety five percent rule removes the count and value limits entirely, but only if the investor ultimately acquires at least ninety five percent of the value of everything identified, a standard that is harder to satisfy and generally reserved for larger portfolios. An incidental property rule can also let minor personal property transferred with real estate, such as a small amount of furniture in a leased space, be disregarded for identification purposes in limited circumstances. Property identified within the forty five days can generally be revoked or replaced in writing before the deadline expires, which gives San Diego, CA investors some flexibility if a preferred replacement falls out of contract. Once the forty five days lapse, however, the list is generally locked, and any property not on it typically cannot be acquired as part of that exchange. We coordinate with Qualified Intermediaries and brokers to keep a running, dated identification record so there is a clear paper trail if the exchange is ever reviewed. Investors relinquishing property in San Diego, CA and identifying replacement property nationwide should also build in time zone and closing coordination buffers, since a property that looks available on day forty four can move quickly in an active market. A San Diego, CA investor rolling equity out of a coastal asset and into industrial or multifamily property in a lower cost metro should generally start broker outreach in multiple markets simultaneously, since waiting to hear back from a single region can quietly consume much of the forty five days. We also generally suggest keeping a written log of every property considered and rejected during the search, even before formal identification, because that log can generally help demonstrate a good faith, documented process if the exchange is ever questioned. Some San Diego, CA investors also generally use the identification period to negotiate multiple purchase and sale agreements in parallel, contingent on the exchange, which can generally provide a backup path if a primary replacement candidate falls through during due diligence. Educational content only. This is not tax, legal, or investment advice, and investors should confirm identification strategy with their own qualified intermediary, attorney, or tax advisor before relying on any identification path.