The 45-Day Identification Period in a Michigan 1031 Exchange

The forty-five days begin on the date title to the relinquished property transfers, not the date the exchange agreement is signed and not the date a Michigan investor decides to pursue an exchange. It runs on calendar days, meaning weekends, federal holidays, and Michigan-specific closures all count toward the total. An investor who closes on a Detroit industrial building on a Thursday has identification due by roughly the end of the following six-and-a-half weeks, regardless of how those weeks fall on the calendar.

Because the clock cannot be paused, most exchange professionals recommend Michigan investors begin evaluating replacement candidates before the relinquished property even closes, treating the marketing and escrow period as informal research time rather than waiting for day one to start looking.

The IRS gives exchangers three distinct ways to structure a valid identification, and the choice depends mostly on how many properties are being targeted and their combined value relative to the relinquished asset.

• the three-property rule, allowing up to three properties of any value to be named
• the 200 percent rule, allowing any number of properties as long as their combined fair market value does not exceed twice the value of the relinquished property
• the 95 percent rule, allowing any number of properties of any value, provided the investor actually acquires at least 95 percent of the total value identified

The three-property rule is the most commonly used of the three because it is the simplest to satisfy and carries the least risk. An investor selling a single multifamily property in Ann Arbor and looking to replace it with one comparable asset in Southeast Michigan can name a primary target and two realistic backups without worrying about value ceilings. The 200 percent rule tends to come into play when an investor is diversifying into several smaller assets, such as trading one larger Lansing office building for a handful of retail properties spread across mid-Michigan. The 95 percent rule is used far less often because failing to close on 95 percent of the identified value can unravel the entire exchange, and it generally only makes sense when an investor has near-certainty about closing every property on a longer list.

A valid identification has to unambiguously describe each property, typically through a legal description or an address, delivered in writing to the qualified intermediary or another party involved in the exchange before midnight on day forty-five. A verbal mention to a broker does not count. An email that names a property only by a nickname or an incomplete address can create ambiguity that undermines the entire notice. Michigan investors working with multi-parcel properties or pending lot splits should confirm the legal description against an actual title commitment rather than relying on a listing sheet, since a street address alone has been enough to create disputes over what was actually identified.

If no valid identification is delivered by day forty-five, the exchange fails as a tax-deferred transaction and the sale of the relinquished property is treated as a normal taxable sale. There is no appeal process built into the rule and no allowance for good-faith delay. This is the primary reason Michigan investors are encouraged to line up a qualified intermediary and start a target list well before closing on the property being sold, since a compressed timeline in a thin submarket, such as parts of northern Michigan with limited commercial inventory, leaves very little room for a late start.