The 200% rule in a 1031 exchange

What is the 200% rule?

When you identify more than three replacement properties, the three-property rule no longer applies. Instead, the 200% rule generally allows unlimited candidates — provided the total value of everything identified stays within twice the value of your relinquished property.

How the 200% math works (with an example)

Add the fair market value of every property you identify, and compare the total to twice the value of what you sold. Sell a property for $1,000,000, and you can generally identify any number of candidates whose combined value is $2,000,000 or less — for example, five properties at $400,000 each.

Note that the test is on identified value, not acquired value. Properties you never intend to buy still count toward the total, so backups are not free.

Who uses the 200% rule?

This framework shows up most often with:

• ·Portfolio buyers assembling multiple smaller multifamily or retail assets.
• ·Investors in competitive markets who expect deals to fall through.
• ·Exchanges where no single large replacement property is available.

What happens if you exceed 200%?

If the combined identified value goes over the ceiling, the separate 95% rule may apply in limited circumstances, but the identification can otherwise be jeopardized entirely. Track the running total as you build your list, and discuss your position with your Qualified Intermediary or tax professional before the period closes.

Frequently asked

What happens if I exceed the 200% limit?

The separate 95% rule may apply in limited circumstances, but exceeding the 200% ceiling can otherwise jeopardize the entire identification. Discuss it with your Qualified Intermediary or tax professional before the identification period closes.

Is value measured at identification or at closing?

Fair market value determinations and the timing of measurement should be confirmed with your tax professional for your specific facts.

Do properties I never buy still count toward the 200%?

Yes — the test generally looks at the total value of everything you identified, not what you ultimately acquire. Backup properties count toward the ceiling.

What is the 95% rule?

A separate, rarely used framework that may apply when an identification exceeds both the three-property and 200% limits. It is fact-specific and unforgiving; if you think it might apply to you, speak with your Qualified Intermediary or tax professional before identifying.