1. Myth No. 1
"A taxpayer must acquire replacement property with an investment property similar in ‘use’ to the
investment property relinquished, i.e. apartments for apartments, land for land, offices for offices."
The real fact is the Internal Revenue Service has applied a very flexible interpretation to the "like-
kind" requirement defining it as having reference to the nature or character of the property and
not its grade or quality. Therefore developed property, of any product type, may be exchanged for
a leasehold interest in real estate if there is an excess of 30 years remaining in the lease.
Optional renewal periods are treated as part of the leasehold term.
An exchange of cooperative housing corporation stock for condominium units in the same
physical project will qualify where the local law provides that a cooperative housing project with
leases in excess of 30 years is tantamount to a condominium. The fact that the parties held the
property in different form, i.e., exchange of an interest in property held as a tenant-in-common
with property held in fee simple without any co-tenants, will not affect the qualification as a tax
deferred exchange.
Real Estate located outside of the United States and real estate located within the United States
are not considered to be like-kind property. Therefore, exchanges involving foreign and U. S. real
estate do not qualify for non-recognition-of-gain treatment under the like-kind exchange rules.
The definition of United States when used in a geographical sense in the Internal Revenue Code
includes only the State and the District of Columbia. United States territories such as Guam do
not qualify as "like-kind" property.
Myth No. 2
"In a real estate 1031 Exchange, a tax-payer may designate as many properties as he/she
wishes as long as a diligent effort is made within the 180 period."
The 1991 regulations published by the Department of Treasury clarified the identification period
for the delayed exchange.
The Identification Period: The "Identification period" is a 45-day period beginning on the date the
taxpayer transfers the relinquished property. The period ends at midnight of the 45th day.
The Exchange Period: The "exchange period is a 180 day period beginning on the date the
taxpayer transfers the relinquished property and ends at midnight on the 180th day. However, if
the taxpayer is required to file his return prior to the final day of the exchange period, the date on
which the tax-payer is required to file his tax return (giving consideration to extensions) becomes
the final day of the "exchange period."

2. In the situation where the taxpayer, as part of the same exchange, transfers more than one piece
of property, the regulations mandate that the time period for the "identification period" and the
"exchange period" begin to run with the first transfer.
Where the identification period or the exchange period ends on a Saturday, Sunday, or legal
holiday, the identification period or exchange period is not extended. Acts of God or a natural
disaster will not extend these periods or permit other properties to be identified in the event the
replacement property(ies) identified is/are destroyed.
Replacement property must be identified "unambiguously in writing signed by the tax-payer and
hand delivered, mailed or other-wise sent before the end of the 45-day identification period to a
third party (i.e. the qualified intermediary) involved in the exchange other than the taxpayer or a
related party."
Replacement properties must be identified as follows: (a) Three properties of any fair market
value, or (b) any number of properties as long as their aggregate fair market value (irrespective of
net equity) at the end of the identification period does not exceed 200% of the value of the
relinquished properties.
The Code provides for two exceptions:
• Property actually acquired by the taxpayer within the 45-day identification period is
deemed to have met the identification requirement without the requirement for a specific
designation notice.
• If more than three properties are identified, and the aggregate fair market value exceeds
200%, the taxpayer must purchase 95% of the property identified. A taxpayer may
substitute a property for one previously identified by submitting a letter of revocation and
replacement to the third party before the 45th day. For purposes of identification,
incidental property is disregarded. Incidental property is considered property normally
transferred with a larger property and which as a fair market value of less that 15% of the
larger property. The identified property must be substantially the same as the property
officially identified. Property under construction must include as much detail as is
practicable at the time identification is made. It must be substantially the same property
when received as was identified.