Obviously, meeting the requirements for the identification of replacement property is much easier if the entire sale proceeds will be rolled over into a single replacement property. This rule may provide that the furnishings of a hotel, for example, do not need to be separately identified in meeting the identification requirement. Under IRS regulations, the replacement property is considered to have been received when the benefits and burdens test has been met. If your replacement property is to be constructed, it is important to note that only construction done by the end of the exchange period will qualify as replacement property. Any construction occurring after the exchange period will not be treated as like-kind property.
Proper timing is critical.
Actual or constructive receipt by your agent is considered to be actual or constructive receipt by you. In structuring a deferred exchange you must consider several business risks associated with the transaction. Obviously, as the party ultimately receiving the replacement property, you will want control over the property selection and purchase arrangement, as well as security to ensure performance by the seller. Therefore, the regulations provide certain ways in which your sale proceeds can be handled while the purchase of replacement property is being arranged. The sale proceeds can be kept in a qualified escrow account or a qualified trust, for example.