The three identification rules
Within 45 days of closing on your relinquished property, you must provide a written list of replacement properties to your Qualified Intermediary (QI). You can use one of three identification rules:
3-Property Rule: Identify up to three properties, regardless of their combined value. This is the most common approach. You don't have to acquire all three — you can acquire any one or more of them.
200% Rule: Identify any number of properties, as long as their combined fair market value does not exceed 200% of the relinquished property's value. Useful when you want a larger list of options.
95% Rule: Identify any number of properties at any combined value — but you must actually acquire at least 95% of the total fair market value of everything you identified. This rule is almost never used because it is extremely difficult to satisfy.
How to write the identification letter
The identification must be in writing, signed by you, and sent to your QI (or another party involved in the exchange — such as the seller of the replacement property or an escrow company) by midnight of the 45th day. Email to the QI satisfies the written requirement.
Each property must be unambiguously described. For real property, a legal description or street address is sufficient. Do not write "a property in Denver, Colorado." Write "123 Main Street, Denver, CO 80203." Vague descriptions can disqualify the identification.
You cannot change your list after 45 days. You can revoke and resubmit your list within the 45-day window, but not after it closes.
Common mistakes and how to avoid them
Missing the 45-day deadline is the most common — and most catastrophic — error. Mark the date immediately after closing. Do not wait for a replacement property to go under contract before starting the identification process; you may not have time.
Identifying too few properties limits your flexibility. If you identify only one property and the deal falls through, you have no backup and the exchange fails. Most experienced exchangers identify the 3-property maximum as a hedge. Also, if you identify three properties and subsequently acquire all three, that is allowed — you do not have to choose just one.
Identifying property still to be built (improvement exchanges)
You can identify replacement property that does not yet exist or is still under construction — a build-to-suit or improvement exchange. Because the finished property will not exist by day 45, the identification must describe the underlying real estate and the improvements to be made in as much detail as is practicable at the time of identification — for example, the land plus a description of the building to be constructed.
For the exchange to fully defer tax, the improvements must actually be completed (and the property received) within the 180-day window, and you must receive substantially the same property you identified. Value not yet built into the property by day 180 counts as boot. Improvement exchanges typically require an exchange accommodation titleholder to hold title while construction proceeds.
Identifying DSTs, TICs, and fractional interests
Replacement property does not have to be a whole building. A Delaware Statutory Trust (DST) interest, a tenancy-in-common (TIC) interest, or another fractional ownership interest in real property can be identified and acquired in a 1031 exchange. Identify a DST by naming the specific trust and the percentage or dollar amount of the beneficial interest you intend to acquire. Fractional interests let smaller exchangers satisfy the reinvestment requirement precisely and provide backup options within the three-property limit.
The incidental property rule
Personal property that is incidental to a larger item of replacement real property does not have to be separately identified, as long as (1) in standard commercial transactions the incidental property is typically transferred with the larger property, and (2) its aggregate fair market value does not exceed 15% of the larger property's value. For example, furniture in a furnished rental or equipment that comes with a building need not be listed separately. Note, however, that under current law such personal property is generally not like-kind and any value attributable to it is boot — the incidental rule addresses identification, not tax-free treatment.
Revoking and amending before day 45
You are not locked into your first list. At any point before midnight on day 45, you may revoke a prior identification and submit a new one, following the same written, signed, and delivered requirements. Many exchangers refine their list as due diligence progresses. Once the 45th day passes, the list is frozen — you can only acquire properties on it, and you cannot add, substitute, or expand it. Keep dated copies of every identification and revocation.
How the 45-day and 180-day clocks interact
Both deadlines start on the date you close on the relinquished property (transfer of the deed). The 45-day identification period and the 180-day exchange period run concurrently, not consecutively — you do not get 45 days plus 180 days. You must close on the replacement property by the earlier of 180 days after the sale or the due date (including extensions) of your tax return for the year of the sale. A relinquished-property sale late in the year can shorten the 180 days unless you file your return on extension.
Because the two clocks overlap, front-load your search. Have candidate properties identified and, ideally, under contract well before day 45 so you have time to complete due diligence and close within the remaining days.
What happens if identification fails
If you do not properly identify replacement property by day 45, or you identify but fail to close by day 180, the exchange fails and the gain from selling your relinquished property becomes taxable in the year of the sale. There is no partial credit for a botched identification. This is why the identification letter — its timing, delivery, and precision — deserves as much care as the purchase contracts themselves.
A partial exchange is different from a failed one: you can intentionally acquire less than the full value of what you sold, defer the gain on the reinvested portion, and pay tax only on the boot. But that is a planned outcome, not a rescue for a missed deadline.
The role of the qualified intermediary in identification
Your qualified intermediary (QI) is the standard recipient of the identification notice, and the QI holds the sale proceeds so you never have constructive receipt of them — touching the cash yourself blows the exchange. Choose and engage the QI before you close on the relinquished property; you cannot set up an exchange after the sale has already happened. The QI also documents the identification date and maintains the paper trail the IRS expects to see.
Do not rely on your real estate agent or attorney to make the identification for you unless they are specifically coordinating with the QI. The written notice must come from you (or an authorized agent) and reach the QI or another permitted party by midnight on day 45.
Reverse and improvement exchange variations
Two structures interact with identification. In a reverse exchange, you acquire the replacement property first (through an exchange accommodation titleholder) and then sell the relinquished property; you still must identify the relinquished property within 45 days and complete the exchange within 180 days. In an improvement (build-to-suit) exchange, the identification must describe the improvements to be constructed, and only the value actually completed within 180 days counts toward deferral. Both are more complex and more expensive than a standard forward exchange — engage an experienced QI and tax advisor before starting.
A practical checklist for the 45-day window
Immediately after closing, calendar day 45 and day 180. Begin your property search before the sale closes, not after. Line up financing early, since a replacement property you cannot fund is useless. Identify the full three-property maximum when possible to preserve backups. Deliver the signed identification to your QI by email with a read receipt, and keep a dated copy. Confirm each identified property is described by street address or legal description — never a vague locality. Review the list with your advisor before day 45 closes, because after that the list cannot change.
Frequently asked questions
Can I identify a property that is still under construction?
Yes. Describe the underlying land and the improvements to be made in as much detail as practicable. To fully defer tax, the improvements must be completed and the property received within the 180-day window; value not in place by day 180 is boot.
Can I identify a DST or fractional interest as replacement property?
Yes. A Delaware Statutory Trust interest, a tenancy-in-common interest, or another fractional interest in real property can be identified — name the specific trust or interest and the amount you intend to acquire.
Do the 45-day and 180-day periods run back-to-back?
No. They both start on the day you close the relinquished property and run concurrently. You do not get 45 plus 180 days, and the exchange must also close by your tax-return due date including extensions.
Can I change my identified properties after I submit the list?
Yes, but only before midnight on day 45. You may revoke a prior identification and submit a new one within the 45-day window. Once the 45th day passes, the list is locked and cannot be changed, expanded, or substituted.
Can I identify a property I haven't seen in person?
Yes. The identification is about intent, not due diligence. You can identify a property on paper and still walk away from it before closing.
What happens if I miss the 45-day identification deadline?
The exchange fails entirely. All proceeds become taxable in the year the relinquished property was sold.
Do I have to acquire all the properties I identify?
Under the 3-property rule and 200% rule, no — you can acquire any one or more of the identified properties. Under the 95% rule, you must acquire 95% of the total identified value.
Sources
Educational information and estimates only. Not tax advice. Tax rules change and vary by situation; consult a qualified tax professional before acting.