200 Percent Rule

Guidance on the IRS 200 percent rule enabling 1031 exchange investors to identify more than three replacement properties, as long as their combined value does not exceed 200% of the relinquished property.

The 200 percent rule offers Washington DC investors greater flexibility than the three-property rule by allowing identification of more than three replacement properties. Under this IRS provision, you may identify any number of potential replacement properties as long as their combined fair market value does not exceed 200 percent of the fair market value of the relinquished property sold. This rule is particularly valuable for investors looking to diversify across multiple single tenant NNN retail properties in different states or across different asset classes such as multifamily, industrial, and medical office buildings. For example, if you sell a property for $1 million, you can identify properties with a combined value of up to $2 million. We help investors calculate the 200 percent threshold, structure their identification letter, and source qualifying replacement properties in all 50 states that fit within the valuation limit.

Frequently Asked Questions

When should I use the 200 percent rule instead of the three-property rule?

The 200 percent rule is best when you want to identify more than three replacement properties but can keep their combined value under 200 percent of your relinquished property value. This works well for Washington DC investors who want to exchange into multiple smaller single tenant NNN retail properties, such as several convenience store or quick service restaurant locations across different states. If you only need three or fewer options, the three-property rule is simpler. If you need to identify properties exceeding 200 percent of your sale price, the 95 percent exception is your only alternative.

How is the 200 percent threshold calculated for a 1031 exchange?

The 200 percent threshold is based on the aggregate fair market value of all identified replacement properties compared to the fair market value of the relinquished property on the date of sale. For example, if you sell your Washington DC property for $1.5 million, the total value of all identified replacement properties cannot exceed $3 million. Fair market value is typically established through appraisals, broker opinions of value, or contract prices. We help investors accurately calculate this threshold and identify single tenant NNN retail and other replacement properties in all 50 states that fit within the limit.

What happens if I exceed the 200 percent limit on my identification?

If the combined fair market value of your identified properties exceeds 200 percent of the relinquished property value, and you have identified more than three properties, your identification may be invalid unless you meet the 95 percent exception. An invalid identification means your entire 1031 exchange fails, and you will owe capital gains taxes. This is why careful valuation and planning are critical. We work with Washington DC investors to ensure every identified property is accurately valued and the aggregate stays within the 200 percent limit.