1031 exchange 200% rule - fair market value

[Michelle R.]

There are several off market deals that have been presented to me by brokers. We are not very far into negotiations.
On my replacement property identification form, I would like to name 4 or 5 properties by using the 200% rule. As these are not advertised on the market, I would like to list these with a somewhat low fair market value so that I can fall within the 200% guidelines. I am wondering how is fair market value determined so that I can justify the value that I will be putting on the form. Thank you.

[Dave Foster]

@Michelle R., There is a little bit of flexibility in your identifications.  Since these are not on the market you simply need to use a consistent defendable rationale.  You could use some comps from other properties.  You could also apply a "probable purchase price".  It does need to be consistent and not an obvious attempt to "lowball" so you can get more properties on the list.

@Jay Helms, Sorry your QI didn't think to talk you through that.  The devil is in the identification period and list of the 1031 exchange.  More exchanges are lost because of the 45 day requirement than any other reg.  And it is very specific.

By the end of day 45 you must have a written list of potential replacement properties.  And after day 45 that list is set in stone and cannot be changed.  That's the easy part.  the hard part is in the nature of the list.  If you name 3 or fewer properties on your list then it doesn't matter how much they are worth.  However, if you want to name 4 or more potential properties then the aggregate value of the list cannot exceed 200% of the value of what you sold - unless you end up purchasing 95% or more of the aggregate value of the list.

IF you sell for $200K and want to name 3 $5 mil properties that is fine.  However if you want to name 4 properties then their aggregate value can be no more than $400K.  If you name more than 4 and their aggregate value is say $800K then the only way to complete the exchange successfully is to actual take title to $760K of the list.

There's no give and no mercy when it comes to the list.  Hopefully  your QI will pay attention to it on your behalf.