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What
is the 200% Rule?
There are many peculiarities to
Section 1031, and the 200% Rule
is one of them. Basically, this
rule means that the sum total
of ALL the purchase prices for
four or more
replacement properties cannot
exceed 200% of the selling price
of the Old Property. Oddly, there
is no limit to the sum of the
purchase prices for three or less
replacement properties.
For
example: If you sell your Old
Property for $100,000, you can
theoretically identify up to three
properties for millions, or even
billions of dollars each! BUT--
if you identify a fourth replacement
property, then the total value
of all the properties on your
list combined cannot exceed twice
the selling price of your Old
Property.
The
IRS is very strict about this.
If the price of one of your four
replacement properties pushes
the sum total of the combined
purchase prices beyond 200% of
the original selling price of
the Old Property, even by one
dollar, the entire exchange
will fail. So keep it
simple -- keep your list to only
three properties or less.
--The
Experts
TEE-Shots
are Tips
from the Exchange
Experts
that are designed to make you think about, and ask questions about, the 1031 exchange process.
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