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1031 Tax Exchange Rules

1031 Identification Rules

All exchanges require that real estates identify up to three potential replacement commercial real estate within 45 days of the close of escrow on the relinquished commercial real estate. Furthermore, acquisition of said identified commercial real estate must occur within 180 days of close on the relinquished commercial real estate. All exchanges must comply with at least 1 of the 3 following rules:

  • Three-Commercial Real Estate Rule - allows the exchanger to identify up to, but no more than 3 potential replacement commercial real estate within the acquisition period.

  • The Two Hundred Percent Rule dictates that if three or more commercial real estate are identified, the aggregate market value of all commercial real estate may not exceed 200% of the value of the commercial real estate, which was sold.

  • The Ninety-five Percent Exception dictates that in the event the other rules do not apply, if the replacement commercial real estate acquired represent at least 95% of the aggregate value of commercial real estate identified, the exchange will still qualify.

    In their 1031 tax exchange, many real estates benefit from buying 1031 real estate as 1031 tic because it completes their exchange and can be closed in a timely manner due to pre-arranged financing.


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