Replacement Property Limitations

1. Three Property Rule:

The Exchanger (seller) may identify up to three replacement properties regardless of their fair market value. The Exchanger is not required to purchase all three properties but must purchase at least one of the identified properties. For example, if selling a relinquished property for $100,000, three replacement properties can be identified with a combined fair market of $750,000.

2. 200% Value Rule:

Exchanger may identify more than three properties but their combined fair market value cannot exceed 200% of the fair market value of the relinquished property. For example, if your relinquished property was sold for $200,000 and four or more replacements are identified for a combined fair market value exceeding $400,000 or double the sale price of the relinquished property, you must purchase all of the identified properties.

Important Exceptions to the Three Property Rule and the 200% Value Rule:

1. Any replacement property which is acquired within the 45-day Identification Period will be treated as properly identified, regardless of whether or not it is within the Three Property Rule or 200% Value Rule.
2. If the Three Property Rule and 200% Value Rule are violated, the property will still be treated as properly identified, provided that 95% of the combined fair market value of the identified replacement property has been acquired.
   For example, if you sell a property for $200,000 and identify five properties with a combined fair market value of $800,000, this may be treated as properly identified provided all five properties are acquired.