Property identification is done through the Qualified Intermediary. The replacement property must be identified in a written document, known as an “Identification Notice.” The requirements for a property Identification Notice are as follows:
Must include a specific and unambiguous description of the replacement property;
Must be signed by the exchanger;
For real property, the Identification Notice must include:
1) Legal description
2) Street address or distinguishable name
3) For property to be produced, such as raw land to be acquired after improvements have been constructed, the Identification Notice should include a description of the underlying real estate and as much detail regarding the improvements as is practical, for example, 100 S. Main St., Anywhere, IL, improved with an 8 unit apartment building.
An identification of replacement property may be revoked prior to the end of the identification period. The revocation must be in writing, signed by the exchanger and delivered to the same person to whom the original Identification Notice was sent. No changes or revocations may be made to the Identification Notice after the end of the identification period (45 days).
The exchanger may identify multiple replacement properties. There are certain additional rules to keep in mind, including the following:
Three Property Rule: The exchanger may identify any three properties, without regard to their fair market value. The exchanger may acquire one, two or all three of the properties as replacement properties.
200% Rule: The exchanger may identify any number of properties, provided the aggregate fair market of all of the identified properties does not exceed 200% of the aggregate fair market value of all of his or her relinquished properties.
95% Rule: The exchanger may identify any number of properties, without regard to their value, provided the exchanger acquires 95% of the fair market value of the properties identified.