The Forty Five Day Identification Period

The forty five day identification period is the single most unforgiving deadline in a Section 1031 like kind exchange. The clock begins on the calendar day after the relinquished property closes, not on the day the seller receives funds or the day the qualified intermediary opens an exchange account. Investors in Baltimore, MD must deliver a written identification of replacement property to the qualified intermediary, or to another party to the exchange who is not a disqualified person, before midnight on day forty five. There is no extension for weekends, federal holidays, or personal circumstances, and there is no informal grace period recognized by the Internal Revenue Service. Three identification methods are available. Under the three property rule, an investor may identify up to three properties of any value. Under the two hundred percent rule, an investor may identify any number of properties provided their combined fair market value does not exceed two hundred percent of the value of the relinquished property. Under the ninety five percent rule, an investor may identify any number of properties of any combined value, but must actually acquire at least ninety five percent of the aggregate value identified. Each identified property must be described unambiguously, typically by street address or a legal description, and for a to be built property the identification must include a description of the improvements along with the land description. Identifications may be revoked or amended in writing at any point before day forty five closes, which allows an investor in Baltimore, MD to adjust a list as due diligence unfolds, but once the deadline passes the list is locked. Missing the forty five day window disqualifies the entire exchange and converts the transaction into a fully taxable sale, triggering federal capital gains tax, depreciation recapture, and Maryland state income tax at the applicable graduated rate, plus the local county piggyback income tax layered on top of the state rate in the county or municipality where the seller resides. Because Maryland also requires withholding at closing on real property sales by nonresident sellers, careful coordination between the identification list, the qualified intermediary, and the settlement agent matters even before the forty five day period is complete. We help investors build a defensible identification strategy early, often before the relinquished property even closes, so the written list can be prepared, reviewed, and delivered well ahead of the deadline rather than in the final hours. This includes coordinating property briefs, confirming legal descriptions, and rehearsing delivery of the identification notice so nothing is left to the final day.