Three-Property Rule

Three properties of any value, counted across every identification you made

Paragraph (c)(4)(i)(A) of the regulation allows three properties "without regard to the fair market values of the properties." The limit applies regardless of how many relinquished properties are in the same exchange, so selling five buildings in one exchange still gives you three, not fifteen.

Every identification is counted unless it was revoked in a signed writing before day 45 ends. Property you receive during the 45 days is treated as identified and takes a place: in the regulation's own illustration, a taxpayer who received property Y early could identify only two more properties of any value.

Items that are incidental to a larger property, such as an apartment building's furniture and laundry machines worth no more than 15% of the building, count with it as one property. They do not need their own description on the list either.

Worked example from the regulation: three named, one bought, rule satisfied

The regulation's examples assume a $100,000 relinquished property. In Example 4 the taxpayer names properties H, J and K, worth $75,000, $100,000 and $125,000. Their total of $300,000 is three times the value sold, yet the identification is valid because there are only three. A later example has the taxpayer buy K alone for $100,000, which completes the exchange. Nothing in the rule required the taxpayer to buy H or J as well; the unused names simply lapse when the exchange period ends.

Revocation changes the count. In Example 6 the taxpayer names Q, R and S, then T and U, then revokes Q and R in a signed writing; only S, T and U count, so the rule is met. In Example 7 the revocation is made by phone, so all four names count, their $310,000 total exceeds the $200,000 cap, and the taxpayer is treated as identifying nothing.

Where it bites: a fourth name on the list can undo the first three

Once a fourth property is on the list, the three-property rule is gone and the whole list must fit the 200% rule. If it does not, the only rescue is the 95% rule, which requires buying nearly everything you named.

DST interests are where sellers run out of places. The regulation does not address DSTs by name; this page treats each DST interest you name as one property. A seller who wants a direct property plus several DST backups has to fit within the 200% cap instead, a choice our DST backup strategy guide and our answer on how many properties you can identify walk through. Run your list past your intermediary and CPA before day 45, while names can still be revoked in writing.