Property exchanges can be classified as simultaneous or delayed. When either of these situations occurs, specific IRS tax rules apply. These regulations are outlined below.

To be a qualified exchange the taxpayer cannot have actual or constructive receipt of the funds during the exchange period. That is why exchange accommodators must be used in delayed exchanges. A delayed exchange is where the properties are not exchanged in the same escrow. See also “Safe Harbor Rules” later in this guide.

An exchange can be simultaneous or delayed. If delayed, the property received in the exchange must be identified within 45 days after the property given is transferred. The identification requirement is met if replacement property is unambiguously (clearly) designated in a written agreement or document signed by the taxpayer. Designation by street address or legal description of real property is considered unambiguous. The identification document must be hand delivered, mailed, faxed, etc., before the end of the identification period.

No matter how many properties are given up in an exchange, a taxpayer is allowed to designate a maximum of either:

If a taxpayer identifies replacement properties over these limits, he/she is treated as if none were identified. A taxpayer can, however, revoke an identification at any time before the end of the 45-day time period. The designated property does not need to exist at the time the relinquished property is transferred. However, the new property must still be unambiguously designated in writing to all involved parties and all time requirements must be met as to receipt of the new property (see 180-day requirement next).

In a delayed exchange, the receipt of the replacement property must be completed before the EARLIER of: