Everybody know that IRS is very serious about using the rules that govern the replacement property. Every year there is a good number of proposed replacement property exchanges which fail to go through as investors fail to meet the rules which the IRS set. The biggest mistakes they make is not being able to identify the replacement properties. As a result, if you don’t also want to fall in the same mistake and not get your exchange of replacement property, keep reading this article and you will know some ways of property identifying an exchange replacement property. As soon as you fully know the expectations needed for identifying replacement properties, you will not make the same mistakes in your next planned replacement property.
There is three property rule. Even if there are many other rules set out on the maximum replacement property which a financier can identify, but this third rule should be adhered to. The reason behind this is that investors should meet the three replacements properties and eventually get either all of them or one or two of them.
The 200% rule comes in when the investors start by identifying over three properties to maybe, later on, replace them as is set in the three property rule. After that, if the market value of the marked properties does not go over 200% of the real market value of the property that is supposed to be relinquished.
The 95% rule though not commonly used it allows investors to choose about three replacement properties which have a value that exceeds 200% of the fair market value of the property that is being relinquished: only if the investor can meet the 95% of the identified properties costs.
The identification methods should be put in writing and also signed by the investor. The property, on the other hand, should be described unambiguously. This means that a property must be identified using the address or legal description. In case the property is fetching an interest less than 100% then the acquisition of the share percentage should be identified.
Give actual information to the needed person. Investors must be willing to give the needed details of the person who is in charge of transferring the replacement property to the investor or the involved parties like the title company, escrow agent or the qualified intermediary. Family members of the real estate agent should be disqualified because they are a party to receiving information. In general, a qualified intermediary is always the preferred person in any replacement property exchange.