DSTs Offer Three Ways to Meet Your Replacement Property Identification Requirements
One of the easiest ways to help ensure your 1031 Exchange doesn’t fail is to use a Delaware Statutory Trust as a back-up approach for identifying your replacement property. We have seen far too often exchangers fail to meet their 45-day property identification requirement for a variety of reasons, including:
These are not uncommon situations. That’s why we always recommend that 1031 exchangers select a few properties as back-up, even if they still intend to complete their exchange with a previously identified property. This provides an excellent backstop in the event something goes wrong. The DST provides three different ways to identify a replacement property:
3 Property Rule: The exchanger may identify any three properties as potential replacement properties, without regard to their fair market value.
200% Rule: The exchanger may identify any number of properties, provided the aggregate fair market value of all the properties does not exceed 200% of the aggregate fair market value of all of the relinquished properties.
95% Exception Rule: If the exchanger identifies more potential replacement properties than allowed under either the Three Property or the 200% Rules, the exchanger will be treated as if no replacement property was identified unless they actually receive a replacement property worth at least 95% of the aggregate fair market value of all of the identified replacement properties.
If you are considering a 1031 Exchange or involved in one now, do the simple and smart thing to help protect your exchange by using a DST backup plan with the three different identification approaches.
For more information, please feel free to contact our team!