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Identify Replacement Property – Stay Compliant, Invest Smart

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Once you've sold your relinquished property, the clock starts ticking. The next step in a 1031 exchange is to identify your replacement property—and you only have 45 calendar days to do it. This part of the exchange is critical. Proper identification keeps your transaction IRS-compliant and sets the stage for your next investment move.

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What Is a Replacement Property?

The replacement property is the real estate you're acquiring with the proceeds from your relinquished (sold) property. To qualify under IRS Section 1031, the replacement must be:

  • "Like-kind" (used for investment or business purposes)

  • Of equal or greater value

  • Purchased within the designated 180-day period

 

The 45-Day Rule

From the day you close on your relinquished property, you have exactly 45 calendar days to identify potential replacement properties in writing. No extensions. No exceptions.

You must submit your identification to Commonwealth1031.com as your QI, and it must follow one of the IRS-approved identification methods:

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✅ Identification Rules

  1. Three-Property Rule
    Identify up to three properties, regardless of value. This is the most common rule used.

  2. 200% Rule
    Identify any number of properties as long as the combined value doesn’t exceed 200% of the sale price of your relinquished property.

  3. 95% Rule
    Identify any number of properties, regardless of value, but you must acquire at least 95% of the total value identified.

 

How to Identify Replacement Property

  1. Work with a Real Estate Agent or Broker
    Begin your search early—even before you close on your relinquished property.

  2. Evaluate Investment Potential
    Look at cap rates, cash flow, appreciation potential, and location.

  3. Submit Identification in Writing
    You must send your identification to Commonwealth1031.com LLC before midnight on Day 45. Include the property address or legal description.

  4. Be Strategic
    While you can identify multiple properties, you can only purchase one or more that fit within IRS rules. Choosing wisely is key.

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