Real Estate Tax Calc
The 3-property rule
Under the 3-property rule, you may identify up to three replacement properties of any value and close on any one, two, or all three of them within the 180-day exchange period. This is the most common identification strategy: naming three candidates protects you if one falls through.
You must close on at least one identified property to complete the exchange. Closing on all three is allowed — you would then hold multiple smaller replacement properties instead of one large one.
The 200% rule
If you want to identify more than three properties, you may do so under the 200% rule: you may identify any number of properties as long as their combined fair market value does not exceed 200% of the fair market value of the relinquished property. This allows a one-to-many exchange when the identified values stay within the limit.
There is also a 95% rule (identify any number of properties but you must close on properties totaling at least 95% of the total identified value), but it is rarely practical and is used mainly as a backup when other identification rules are inadvertently exceeded.
Allocating basis across multiple replacements
When you acquire multiple replacement properties, your carried-over basis from the relinquished property is allocated among them proportionally by value. Each replacement property then has its own depreciation schedule starting from the exchange. The allocation affects future depreciation deductions and the recapture amount when each property is eventually sold.
A worked identification example
Say you relinquish a $1,000,000 property. Under the 3-property rule, you could identify three candidates worth, for example, $700,000, $500,000, and $400,000 — a combined $1,600,000, which is fine because the 3-property rule ignores total value entirely; you may then close on any combination of them. If instead you want to name four or more properties, you switch to the 200% rule, which caps combined identified value at 200% of the relinquished value — here $2,000,000. You could identify five properties totaling $1,900,000 (within the cap) but not five totaling $2,300,000 (over the cap, which blows the identification unless you satisfy the 95% rule). To fully defer, remember you still must acquire replacement value of at least $1,000,000 and reinvest all your equity and debt — the identification rules govern what you may name, not how much you must ultimately buy.
Making a valid identification
The identification itself has strict formal requirements, and sloppy paperwork sinks more exchanges than the value limits do. The identification must be in writing, signed by you, and delivered to your qualified intermediary (or another party to the exchange who is not a disqualified person, such as your agent or relative) by midnight on day 45. Each property must be unambiguously described — a street address or legal description, not 'a duplex somewhere in Austin.' You may revoke and re-identify as often as you like within the 45 days, but once day 45 passes, the list is locked. For property to be built, describe it as it is expected to exist when complete. Keep proof of delivery; a late or vague identification is treated as no identification at all, and the exchange fails.
The 95% rule explained
The 95% rule is the escape hatch if you overshoot the other two limits. It lets you identify any number of properties of any total value, but only if you actually acquire replacement properties worth at least 95% of the total value you identified. In practice this is dangerous: if you identify $3,000,000 of property, you must close on at least $2,850,000 of it — leaving almost no room for a deal to fall through. Most advisors treat the 95% rule purely as a backstop that occasionally saves an exchange where the identification inadvertently exceeded the 3-property and 200% limits, not as a strategy to plan around. If you are relying on it deliberately, you are taking on real execution risk.
Diversification and consolidation strategies
Exchanging into multiple properties serves two opposite goals. Diversification: an investor selling one large, concentrated asset (say a single apartment building) can spread the proceeds across several smaller properties in different markets or asset classes, reducing the risk that one bad local market or one problem tenant sinks the whole portfolio. Estate and management planning: splitting one property into three can let you eventually leave one to each heir, or sell them off one at a time in future years to control the timing of gain recognition. The trade-off is complexity — three closings instead of one, three sets of financing, and three depreciation schedules — but for many investors the flexibility of holding several independent, individually sellable assets is worth it.
Debt and boot across multiple properties
The napkin test still applies to the exchange as a whole, but multiple replacements make the debt math trickier. To avoid mortgage boot, the total debt you take on across all replacements must equal or exceed the debt you paid off on the relinquished property (or you must offset any shortfall with new cash). Your total reinvested equity and value must also meet or exceed the relinquished figures. It is easy to accidentally trade down on one leg — for example, buying two lower-leverage properties that together carry less debt than your old mortgage — and create taxable boot even though the combined purchase price looks large enough. Model the aggregate value, equity, and debt across every replacement before you commit, not property by property in isolation.
DSTs and fractional interests as replacements
When you cannot find or manage enough whole properties within 45 days, a Delaware Statutory Trust (DST) is a common multi-property solution. A DST holds one or more institutional-grade properties and sells fractional beneficial interests that the IRS has ruled (in Rev. Rul. 2004-86) qualify as like-kind real property for 1031 purposes. You can spread exchange proceeds across several DSTs to diversify, satisfy leftover value with a small DST interest to 'mop up' boot, and avoid active management entirely. The costs are illiquidity, layered sponsor fees, and no control over the underlying assets — but for an investor facing a tight 45-day clock or wanting a passive exit, DSTs make it practical to fully deploy proceeds across multiple properties. Tenancy-in-common (TIC) interests are another fractional route with different management and financing dynamics.
Financing several replacements at once
Lining up debt on multiple properties inside the 180-day window is one of the hardest logistics of a one-to-many exchange, and it interacts directly with the boot rules. Each replacement typically needs its own loan, its own appraisal, and its own underwriting timeline — and lenders on 1031 replacements sometimes want to see the exchange documents and the qualified intermediary's involvement. Because your total new debt across all replacements must equal or exceed the debt retired on the relinquished property to avoid mortgage boot, a single property that fails to close, or one loan that comes in smaller than expected, can create taxable boot for the whole exchange. Build in cushion: identify more debt capacity than you strictly need, add cash reserves you can contribute to offset any debt shortfall, and start loan applications the moment you go under contract on the sale. Coordinating several closings inside a fixed 180 days is a real operational project, not a formality.
Reporting the exchange on Form 8824
Every 1031 exchange — whether into one property or several — is reported to the IRS on Form 8824, filed with the tax return for the year you transferred the relinquished property. The form walks through the dates (to prove you met the 45- and 180-day deadlines), the fair market values, the realized and recognized gain, any boot, and the resulting basis in the replacement property. When you acquire multiple replacements, most preparers report the exchange in aggregate on one Form 8824 and then set up a separate depreciation schedule for each replacement based on its allocated basis. Keep meticulous records: the closing statements for the sale and every purchase, the qualified intermediary's accounting, your written 45-day identification, and the basis allocation. If the exchange is examined years later, this file is what substantiates the deferral — and the allocated basis figures drive the depreciation and recapture on each property for as long as you own it.
Frequently asked questions
Can I identify five properties in a 1031 exchange?
Yes, if their combined FMV does not exceed 200% of the relinquished property's FMV (the 200% rule). Otherwise, you are limited to three properties under the 3-property rule.
Do I have to buy all identified properties?
No. Under the 3-property rule, you need only close on one. You miss the exchange if you close on none of the identified properties.
How is basis allocated among multiple replacement properties?
Basis is typically allocated in proportion to each replacement property's fair market value at acquisition.
How do I make a valid identification of multiple properties?
In a written notice, signed by you and delivered to your qualified intermediary by midnight on day 45, with each property unambiguously described by address or legal description. You may revise the list until day 45, after which it is locked.
What is the 95% rule?
If you identify more properties than the 3-property or 200% rules allow, the exchange can still qualify if you acquire at least 95% of the total value you identified. It is a risky backstop, not a planning tool, because it leaves almost no room for a deal to fall through.
Can I use a DST as one of my replacement properties?
Yes. A Delaware Statutory Trust interest qualifies as like-kind real property under Rev. Rul. 2004-86 and is often used to diversify across multiple properties or to absorb leftover proceeds and avoid boot, at the cost of illiquidity and sponsor fees.
Sources
Educational information and estimates only. Not tax advice. Tax rules change and vary by situation; consult a qualified tax professional before acting.