When Can — or Should — You Revoke an Identification in a 1031 Exchange?

Sometimes it is necessary to revoke an identification in a 1031 exchange.

For example, Dwight is doing a Section 1031 exchange involving a 300 unit apartment complex he owns in San Antonio, Texas, and has identified three replacement properties under the Three Property Rule. He then learns that one of the properties he has identified is no longer available.

What should he do?

Dwight should revoke his identification of the unavailable property and identify a new replacement property in its place.

An identification of replacement property can be revoked at any time before the end of the identification period

If Dwight did nothing, he would be left with only two replacement properties, and if those properties did not close he would be unable to complete a Section 1031 exchange.

If, however, Dwight timely revokes the identification of the property that is no longer available — or appropriate — for whatever reason — then he can add a new property to his identification list.

For maximum security when using the Three Property rule, the goal is to end the identification period having named three qualified and suitable replacement properties, any of which can be used as a replacement property in the exchange.

This strategy also applies to other 1031 exchange identification rules (the 200 Percent Rule and the 95 Percent Rule).

Remember, too, that the revocation of identification must, like the earlier initial identification, be made in a written document signed by you that unambiguously describes the property whose identification you have chosen to revoke.

And as with the earlier identification, a revocation of identification must be hand delivered, mailed, telecopied, or otherwise sent to either the person obligated to transfer the replacement property to the exchanger, or any other person involved in the exchange other than the taxpayer or a disqualified person.

To contact Melissa J. Fox about serving as a qualified intermediary or for other 1031 exchange services, send an email to strategicfox@gmail.com

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