1031 Advice needed

In a 1031 exchange of real property, what can be done about a typographical error on an identification worksheet, after the 45 day identification period has passed?

Specifically, the real estate described is correct, however there was an error made in the percentage of ownership the buyer will obtain in the property.

However, along with other documentations detailing our buyer's intent, along with the identification worksheet itself will show that this was a clerical error. Here is an example of what I mean. We identified more than three properties so we used the 200% rule. Here is what our worksheet looks like,
for the example, our exchange monies in trust are $11,000, allowing us to identify $22,000 in property to purchase.


% ownership to obtain Total Property val This buyer's $$ interest
33.33 $12,000 $4,000
33.33 $12,000 $4,000
33.33 $12,000 $4,000
25% $20,000 $5,000

Total $22,000

This is obviously a simplified version, but the clerical error is on the last property listed. It should show a 50% interest. If you add up our buyer's values they do not add to $22,000 but would had the last property been listed correctly. As mentioned before, we have other documents that support this. I feel like I might be able to survive an IRS audit if we just push forward and document the error, however, I am having trouble convincing our intermediary to release the full amount of funds needed instead of the amount listed on the identification.

Any advice is greatly appreciated.

Maybe some of this might clarify things a bit:

All the cash proceeds from the original sale must be reinvested in the replacement property - any cash proceeds that you retain will be taxable.

The replacement property must be subject to an equal level or greater level of debt than the relinquished property or the buyer will either have to pay taxes on the amount of the decrease or have to put in additional cash funds to offset the lower level of debt in the replacement property.

So this talks about two things: (1) any cash that you retain from the transaction is taxable, and (2) the amount of the debt, i.e. mortgages, on the new property must be equal to or greater than the debt on the old property or the difference is taxable. The rules talk about the amount of the mortgages before and after, not the sale price.

Hi HR,

I think the last poster misunderstood your question. The important issue here is the actual intent of the parties. Clerical errors will not disqualify your 1031 exchange provided that you can prove they were legitimate errors, which sounds like you can with some good supporting documentation. You should be in good shape. Just keep a really good, clean file supporting the clerical error and I would also submit a letter explaining what happened to the Qualified Intermediary with a copy of your supporting documentation to support their file as well.