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Identification Rules
by James F. Little, MBA, CCIM, GRI

The Treasury Regulations (applicable to section 1031 of the Internal Revenue Code) dealing with delayed ("Starker") exchanges are effective for "transfers of property made by taxpayers on or after June 10, 1991." Note that transfers of property made by taxpayers after May 16, 1990, but before June 10, 1991, will be treated as complying with these regulations if either the provisions of these regulations or the notice of proposed rulemaking published in the Federal Register on May 16, 1990 ("proposed regulations" which were to apply to transfers of property made after July 2, 1990) are satisfied. This summary has been excerpted from the final Treasury Regulations.

The new regulations provide two primary rules (and one unrealistic alternative) that permit taxpayers to identify more than one replacement ("up leg") property; to wit:

A) Three properties of any value may be identified (the "three-property" rule).

B) Any number of replacement properties can be identified as long as their aggregate fair market value as of the end of the identification period does not exceed 200% of the aggregate fair market value of all of the relinquished properties as of the date (s) the relinquished properties were transferred by the taxpayer (the "200-percent rule").

If, as of the end of the identification period, the taxpayer has identified more properties as replacement properties than permitted under A) or B) above, the taxpayer will be treated as if no replacement property had been identified. This will not apply, with respect to:

1) Any replacement property received by the taxpayer before the end of the identification period; and

2) Any replacement property identified before the end of the identification period and received before the end of the exchange period, as long as the taxpayer acquires designated properties with a gross fair market value of at least 95 percent of the total fair market value of all designated properties (the "95-percent rule")!

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