There are many "gray" areas in a 1031 tax deferred exchange, but the timelines and identification requirements are two areas that are definitely black and white. Though many investors are aware that they must identify replacement property within 45 days of the relinquished property transfer, and close on the replacement property by the 180th day, they are sometimes unaware of the specific identification requirements that must be met along the way.

It is crucial that investors understand that the entire exchange may fail if the investor does not properly identify what the investor intends to acquire in the exchange, in accordance with the rules of the Internal Revenue Service.

Identification Periods - The Replacement Property must be identified within 45 days from the closing of the sale of the first Relinquished Property (the "Identification Period"). This 45 day rule is very strict and is not extended if the 45th day should happen to fall on a Saturday, Sunday or legal holiday or for any other reason, including natural disasters!

Exchange Period - The Replacement Property must be received by the taxpayer within the exchange period which ends within the earlier of 180 days from the date on which the taxpayer transfers the first relinquished property, or the due date for the taxpayer's federal income tax return for the taxable year in which the transfer of the Relinquished Property occurs. The taxpayer may obtain extensions of the tax-filing deadline up to, but not exceeding, the full 180 days.

Manner of Identification - Replacement Property must be identified in a written document (the "identification notice") signed by the taxpayer and hand-delivered, mailed, telecopied, or otherwise sent and received before the end of the identification period. Written identification should be made to the person obligated to transfer the Replacement Property to the taxpayer, or any other person involved in the exchange other than the taxpayer of a disqualified person. Examples of persons involved in the exchange include any of the parties to the exchange, an intermediary, an escrow agent and a title company.

Real Property - In the case of real property, the identification must include the legal description, a street address, or a distinguishable name. In addition, when the identified Replacement Property consists of property to be improved, the taxpayer needs to adequately describe the land and provide as much detail regarding the construction of improvements as is practical at the time the identification is to be made.

Multiple Properties - When identifying replacement property, you may select one of the following rules:

• 3 Property Rule - The taxpayer may identify as potential Replacement Property any three properties, without regard to their fair market value.

• 200% Rule - The taxpayer may identify as potential Replacement Property any number of properties, as long as the aggregate fair market value of the properties does not exceed 200% of the aggregate fair market value of all the Relinquished Properties as of the initial transfer date.

• 95% Exception - If the taxpayer has identified more properties than are permitted under both of the two rules above, the taxpayer must receive, by the end of the exchange period, property the fair market value of which is at least 95% of the aggregate fair market value of all properties identified.

Fair Market Value - For this purpose, the fair market value of property is determined as of the earlier of the date the property is received by the taxpayer, or the last day of the exchange period. Further, the fair market value of property means the fair market value of the property without regard to any liabilities secured by the property.

Revoking an Identification - The identification may be revoked prior to the end of the 45-day identification deadline. Oral revocations are not permitted. Instead, the person to whom the original identification was sent must be notified in a written document signed by the taxpayer and hand delivered, mailed, telecopied or otherwise sent and received before the end of the identification period.

The taxpayer is advised to seek the advice of their CPA and/or tax consultant regarding the identification period, exchange period and manner of identification.

First American Exchange Company has provided information regarding the time periods as a courtesy only. Compliance with the rules and proper identification is the sole responsibility of the taxpayer and First American Exchange Company has no responsibility and/or liability in connection therewith. No further notice is required of First American Exchange Company.

All information contained herein is provided as a matter of courtesy to our clients. First American Exchange Company, its officers and agents make no representations as to the completeness and applicability of the information contained herein to each individual taxpayer. As a Qualified Intermediary, First American Exchange Company is precluded from providing tax or legal advice to its clients. Please consult your own independent tax or legal advisor regarding your specific circumstances.