You all know that IRS is stern when it comes to the application of the state’s rules of the replacement property. All year through several of the proposed replacement property exchanges do not go through because investors do not meet all the requirement that has been set forth in the IRS code. Investors make a big mistake of being unable to properly identify the replacement properties. As a result, if you don’t also want to fall in the same mistake and not get your exchange of replacement property, keep reading this article and you will know some ways of property identifying an exchange 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. Even if there are many other rules set out on the maximum replacement property which a financier can identify, but this third rule should be adhered to. The reason behind this is that investors should meet the three replacements properties and eventually get either all of them or one or two of them.
The 200% rule comes in when the investors start by identifying over three properties to maybe, later on, replace them as is 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.
Then there’s the 95% rule which is not used commonly but which enables investors to select more than three replacement properties all with a value which is more than the 200% fair market value of the property being relinquished: but the investor must be able to at least meet 95% of the market 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. This means that a property must be identified using the address or legal description. If the property is one where the investors get an interest that is 100%, it means that the share percentage of the acquisition must be identified.
The right person must receive the actual information. 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.