The 45-calendar-day window, beginning on the date the relinquished property is sold, within which a taxpayer conducting a Section 1031 exchange must formally identify one or more candidate replacement properties in writing to the qualified intermediary; an identification, once made, can generally be revoked and replaced with a new one as long as the change is also made within the 45-day window.
Practice questions using 1031 Identification Period
Original questions written against the published FINRA and NASAA exam content outlines — not actual exam questions. Every choice is explained.
True or False: Once an investor has formally identified a replacement property during the identification period, she may still revoke that identification and substitute a different property, as long as she does so before the identification period itself ends.
A.TrueCorrect. Identifications may be revoked and replaced with different candidate properties any time before the identification period ends.
B.FalseWrong. Identifications are not locked in the moment they are made; they may be changed as long as the change also occurs within the identification period.
Why: Identifications may generally be revoked and replaced with different candidate properties any time before the identification period ends; it is only after that period closes that the identified list becomes locked in.
An investor wants to identify more than a small handful of candidate replacement properties during her exchange's identification period, in case her top choice falls through. What governs how many properties she may identify?
A.She may identify an unlimited number of candidate properties, with no restriction on count or combined value, as long as she identifies them within the identification period.Wrong. Identification is subject to real limits on count or combined value, not unlimited flexibility.
B.She may identify only a single candidate replacement property; naming any additional alternatives disqualifies the exchange.Wrong. More than one candidate property may generally be identified; a single-property limit understates the flexibility available.
C.The number of properties she may identify depends solely on how many relinquished properties she is exchanging, on a one-for-one identified basis.Wrong. Identification limits are not tied one-for-one to the number of relinquished properties.
D.She may generally identify a small, fixed number of candidate properties regardless of their combined value, or instead identify a larger number of properties as long as their combined value does not exceed a specified percentage of the relinquished property's value; exceeding both alternatives can jeopardize the exchange.Correct. Identification rules offer a fixed-count alternative or a value-capped alternative for naming multiple candidates.
Why: She may generally identify a small, fixed number of candidate properties regardless of their combined value, or instead identify a larger number of properties as long as their combined value does not exceed a specified percentage of the relinquished property's value; exceeding both alternatives can jeopardize the exchange.
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