CES Exchange Timelines & Deadlines 2 — Questions and Answers
Question 1: Which identification rule allows a taxpayer to identify any number of replacement properties as long as their combined fair market value does not exceed 200% of the relinquished property's FMV?
- Three-property rule
- 200% rule (Correct answer)
- 95% rule
- Unlimited property rule
Correct answer: 200% rule
The 200% rule allows identification of any number of properties as long as their aggregate FMV does not exceed 200% of the relinquished property's FMV.
Question 2: Under the three-property rule, how many potential replacement properties may a taxpayer identify?
- Up to two properties
- Up to three properties regardless of value (Correct answer)
- Up to five properties of equal value
- An unlimited number if values are disclosed
Correct answer: Up to three properties regardless of value
The three-property rule allows identification of up to three replacement properties regardless of their combined fair market value.
Question 3: The 95% rule allows a taxpayer to identify any number of properties, but requires that:
- At least 95% of the identified properties be acquired (Correct answer)
- The replacement properties have a combined FMV of at least 95% of the relinquished property
- 95% of exchange funds be reinvested within 45 days
- The QI hold at least 95% of the exchange proceeds
Correct answer: At least 95% of the identified properties be acquired
Under the 95% rule, a taxpayer may identify any number of properties but must actually receive 95% or more of the aggregate FMV of all identified properties.
Question 4: When does the 45-day identification period begin?
- On the date the exchange agreement is signed with the QI
- On the date the relinquished property is transferred to the buyer (Correct answer)
- On the date the taxpayer receives the QI's wire
- On the date the purchase agreement for replacement property is signed
Correct answer: On the date the relinquished property is transferred to the buyer
The 45-day identification period begins on the date of the actual transfer (closing) of the relinquished property.
Question 5: Must replacement property identification be submitted in writing to qualify under IRC 1031?
- No, oral notification to the QI is sufficient
- Yes, identification must be in writing and signed by the taxpayer (Correct answer)
- No, listing on the exchange agreement at closing is sufficient
- Yes, but only if the property value exceeds $1 million
Correct answer: Yes, identification must be in writing and signed by the taxpayer
Treasury Regulations require that replacement property be identified in a written document signed by the taxpayer and delivered to the QI or another qualified party.
Question 6: If a taxpayer closes on the relinquished property on March 1, what is the last day to identify replacement property?
- March 31
- April 15 (Correct answer)
- April 30
- April 14
Correct answer: April 15
Counting 45 calendar days from March 1, the identification deadline falls on April 15.
CES Exchange Timelines & Deadlines 2
Which identification rule allows a taxpayer to identify any number of replacement properties as long as their combined fair market value does not exceed 200% of the relinquished property's FMV?