Useful Tips to Identify an Exchange Replacement Property
It is a known fact that IRS is very firm in matters of applying the governing rules of the replacement property. Every year there is a good number of proposed replacement property exchanges which fail to go through as investors fail to meet the rules which the IRS set. Inability to identify the replacement properties is the biggest mistake that most investors make. Therefore in order that you also do not make similar mistakes and prevent approval of your next exchange of replacement property, you should read on and know the methods of how to properly identify a replacement property. After you are fully conversant with the requirements to identify replacement properties, then you will not spoil your next arranged exchange.
The three-property rule is the main one. Although there are several other rules laid out about the number of possible replacement properties that an investor can identify, however, this third property rule must be observed. This is because an investor is able to select a maximum of three replacements properties and in the long run acquire either one or two of them or all of them.
The 200% Rule is where an investor first identifies more than the above three properties to possibly replace as set in the three property rule. After that, if the market value of the marked properties does not go over 200% of the real market value of the property that is supposed to be relinquished.
The 95% rule though not commonly used it allows investors to choose about three replacement properties which have a value that exceeds 200% of the fair market value of the property that is being relinquished: only if the investor can meet the 95% of the identified properties costs.
Methods of identification is that it should be first signed by the investor and put in writing. The property, on the other hand, should be described unambiguously. The property from then on must be identified using the address or legal description. In case the property is fetching an interest less than 100% then the acquisition of the share percentage should be identified.
The right information should be given to the right person. The investors must supply the required data to the person charged with transferring the replacement property to the investor or the people that are included in the exchange like the title company, escrow agent or the qualified intermediary. Family members of the real estate agent should be disqualified because they are a party to receiving information. In a replacement property exchange qualified intermediaries are the best.
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