In your 1031 exchange, one critical due date falls 45 days from the day you close the sale of your Old Property. You have 45 days in which to create a list (called a 45-day list) of properties you may want to buy.

If you put three properties or less on this list, there are no price limitations on these properties. For example, if you are selling a purple duplex for $100,000, you could list three potential replacement properties for $10 million each, for a total of $30 million.

However, if you put more than three properties on your list, then it is capped at twice the selling price of your Old Property. If you sold your purple duplex for $100,000, and you put four or more properties on your list, the total value of your list cannot exceed twice this amount ($200,000). If your list includes four condos for $75,000 each, your exchange is disallowed, not because your list exceeded three properties, but because the total value of the four properties on your list exceeded twice your purple duplex's selling price. Yes -- your entire exchange is disallowed, even if you buy only one of the condos.

My rule for identifying properties is what I call the keep it simple rule -- keep your list to three properties or less.

When you place properties on your list, you have to show an address for them -- one that must be so complete that if you are audited the IRS agent following it can go directly to the front door of the properties. Your property identification should read something like 123 Main Street, Vail, Colorado, not a three-bedroom house in Vail, Colorado.

If you are listing a unit in a condominium tower, you must identify the actual unit you are thinking of buying. Your identification might read Unit 203, Naples Condominium Tower, 123 Main Street, Naples, Florida.

If you are identifying bare land that doesn't have an address, your list should show the legal description instead. In the rare case that the property doesn't even have a legal description (or you don't know it), identify it in a way that would make it easy for an IRS auditor to visit it.

For example, one of our clients recently wanted to buy a lot in a subdivision that had not received final approval as his 45-day deadline approached. Since his lot would not have a legal description until the subdivision was approved, we requested he give us a subdivision map with the address of the subdivision identified, the lot he wished to buy shaded to clearly distinguish it from the other subdivision lots, and a written indication that he was buying the shaded lot on the map.

You must give your list with the full property identification to your qualified intermediary by midnight on the 45th calendar day after the sale of your Old Property -- even if the 45th day falls on a Saturday, Sunday, or holiday. There are no extensions, and you cannot change the list after the 45th day, even if you find the most perfect replacement property. On rare occasions such as a national emergency like Hurricane Katrina, the IRS will extend the deadlines.

Be careful of what the IRS calls Accommodating Accommodators. It knows that there are qualified intermediaries out there who will let you change your 45-day list after the deadline, and is looking for them. It is in the process of changing a few of the intermediary rules to make it easier to identify them and their clients and says that when it finds them, it will audit every exchange they have ever handled.

So, if you use one of these intermediaries, even if you play by the rules, you can expect that some day in the future the IRS will want to take a look at your exchange. It also has stated that there is no statute of limitation protection on these audits because of the potential presence of fraud. Deal with a reputable intermediary and you won't run the risk of having to undergo such an audit.

Published: December 22, 2005

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Gary Gorman is a retired CPA who has taught national tax classes for both Arthur Andersen & Co. and for Price Waterhouse & Co. and numerous undergraduate tax classes at Oregon State University. Since 1994 he has educated realtors, investors, CPAs and attorneys throughout the United States and Mexico on the intricacies of 1031 Exchanges. As the author of the best selling 1031 book Exchanging Up! and a co-author with Rich Dad/Poor Dad and Donald Trump, Gary is considered one of the Nation's leading 1031 Experts. Gary is the owner and managing partner of the national firm, 1031 Exchange Experts, LLC, which headquarters is located in Denver, Colorado, and offices in Arizona, Connecticut, Florida, Hawaii, and Texas. His firm is commited to securely holding client funds in separate, segregated accounts which clients can monitor through our affiliate banks' website. As a Qualified Intermediary, Gary has been involved in more than 30,000 1031 Exchange transactions since 1994. Contact him at , visit his website at expert1031.com, or call 866-694-0204.