The short answer
The 95% rule is the exception that saves an over-identification: if you identify more than three properties worth more than 200% of what you sold, the identification still holds only if you receive identified property worth at least 95% of the combined value of everything you identified. It is in Treasury Regulation section 1.1031(k)-1(c)(4)(ii)(B). In practice it means buying nearly the whole list before the exchange period ends.
At a glance
| Threshold | Receive at least 95% of the total value identified |
|---|---|
| Value date | Earlier of the day received or the last day of the exchange period |
| Deadline | All of it received before the 180-day exchange period ends |
| Always protected | Property received during the 45-day period |
The exception applies only after both counting limits have failed
Paragraph (c)(4)(ii) of the regulation starts with the penalty: if you identified more properties than the three-property rule or the 200% rule permits, you are treated as if no replacement property had been identified.
Two carve-outs follow. Property received before the identification period ends is still treated as identified. Other identified property received before the exchange period ends also counts, but only if what you receive is worth at least 95% of the aggregate fair market value of all identified replacement properties.
The value of each identified property is fixed as of the earlier of the date you receive it or the last day of the exchange period. Revoked identifications drop out of the total; everything else stays in. The regulation itself gives the exception its name, the "95-percent rule".
Worked example: six properties identified, five bought, the exchange fails
Hypothetical: you sell for $1,000,000, so the 200% cap is $2,000,000. You name six properties worth $2,400,000 in total, which breaks both limits. To be saved by the 95% rule you must receive at least $2,280,000 of them before the exchange period ends.
You close on five, worth $2,000,000, and the sixth falls through. You received about 83% of the identified value, so the rule is not met and you are treated as having identified nothing. None of the five purchases is like-kind replacement property unless it closed within the first 45 days. Had the sixth property closed as well, the full $2,400,000 would have been received and all six purchases would qualify. Run your own numbers with your CPA.
The regulation's Example 7 gives the same result on a smaller scale: the taxpayer bought $190,000 of a $310,000 list, roughly 61%, and the exchange failed.
Where it bites: one failed closing sinks the whole exchange
The rule suits a seller who intends to buy every property on the list, such as a portfolio of several replacements under contract at once. It is not a backup strategy, because a single property that does not close can drop you below 95%. Before relying on it, line up every closing: contracts, financing and, for DST interests, the subscription documents, so that each named property can actually be received before the exchange period ends.
If any name on an over-identified list is uncertain, trim the list to fit one of the two counting limits before day 45. After day 45 the list is fixed; our answer on an identified property falling through after day 45 explains what is left.
Related questions
Is the 95% measured by number of properties or by value?
By value. The test compares the fair market value of identified property you receive with the aggregate fair market value of all identified properties, not the number of closings.
What about a property I bought during the first 45 days?
It is protected on its own by paragraph (c)(4)(ii)(A), whatever happens to the rest of the list. It also counts toward the identified property you received.
Can I use the 95% rule as a backup plan?
Not in any practical sense. It requires buying nearly everything you named, so it works only when every property is expected to close; see how many properties you can identify.
Sources
Checked against these publications on September 30, 2026. Rules and figures change; confirm the current version with your CPA or attorney before you act. This page is general information, not tax or legal advice.