1031 Exchange Guide, Part II: Using the 200% rule
The following is an excerpt from this quarter's 1031 Exchange Guide featured exclusively in our flagship publication, Mobile Quarterly. For a copy of the full issue, please contact firstname.lastname@example.org or email@example.com.
There are three ways, or rules, to acquire multiple or greater value “like-kind” properties with a 1031 exchange: (1) the Three Property Rule, (2) the 200% Rule, and (3) the 95% Exception. In this issue we will focus on the 200% Rule as well as what qualifies as “like-kind” according to the Internal Revenue Service.
The 200% Rule, as defined by Investment Property Exchange Services, Inc. (1031IPX), allows “the Exchanger [to] identify as potential Replacement Property any number of properties, provided that the aggregate fair market value (as of the end of the Identification Period) of all the identified properties does not exceed 200% of the aggregate fair market value of all of the Relinquished Properties.” This means you can use your current property as a version of down payment on more than the standard 3 property maximum (ie. Three Property Rule) up to 200% of the value of your exchanged property. You can also go for a much more valuable property than the one you currently own with this rule. The IRS knows the reality that it can be difficult to find a perfect exchange in both value and type, so their definition of “like-kind” is likely different than one might assume. Let’s see what the IRS means by “like-kind” for mobile home park real estate to help you in your search for replacement property...
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