On or before the day which is 45 days after the date on which the Taxpayer transfers the relinquished property, the Taxpayer must unambiguously identify the replacement property, in a writing signed by the Taxpayer and delivered to at least one party to the exchange who is not a "disqualified" person, usually the Qualified Intermediary (QI). § 1031(a)(3)(A).
Once again, there are several key points in the identification process. The identification:
- Must be made by midnight on the 45th day. Failure to make a timely identification will disqualify the exchange.
- Must be unambiguous. That means it must contain enough information to allow the determination that this is the one and only property that fits the description.
- Must be in writing. An oral identification does not qualify.
- Must be signed by the Taxpayer. If the Taxpayer is not available, the signer should be appointed as agent pursuant to a written power of attorney.
- Must be delivered to a party who is not a "disqualified" person.
Notice by fax or certified mail is acceptable. Reg. § 1.1031(k)-1(c)(2). To be on the safe side, it is a good practice to include the closing date as "day one" when counting days. The starting point is usually the date that title transfers to the buyer. However, early possession by the buyer may start the clock running prior to the transfer of title. The IRS will often apply a "benefits and burdens" test to determine the start of the exchange period. Under that test, the exchange period will start when the benefits and burdens of ownership pass to the buyer, even if title has not been transferred.
The 45-day period includes weekends and holidays. The identification and exchange deadlines imposed under Section 1031 may be extended for Taxpayers serving in the military or for Taxpayers affected by a Presidentially Declared Disaster. Taxpayers should consult their tax advisor if they feel they may qualify for an extension under one of these exceptions.
The Taxpayer is precluded from identifying additional properties after the 45-day period expires, even if the desired transaction falls through, so it is a good practice to identify more than one property. The Regulations limit the number of properties that may be identified. [See Identification Rules].
An identification may be revoked, in writing, prior to the expiration of the identification period. Reg. § 1.1031(k)-1(c)(6). Other replacement property may then be identified, as long as the identification occurs within the original 45-day period. There is no extension of time in the event an identification is revoked.
Failure to identify replacement property within 45-days is the most common reason for failure of an exchange. The Taxpayer should be advised to begin looking for replacement property as soon as possible, even before the exchange documents are actually executed.