Can I identify a property for a 1031 exchange that's not listed for sale yet?

Yes, you can identify a property for a 1031 exchange that isn't currently listed for sale. The IRS rules for identifying replacement property don't require the property to be actively marketed or listed. You just need to identify the potential replacement property within 45 days of selling your relinquished property. The main challenge will be timing. Since your neighbor hasn't committed to selling and might not do so for up to 8 months, you'll face significant risk. Remember that not only do you need to identify the property within 45 days, but you must also close on the new property within 180 days (about 6 months) of selling yours. If your neighbor decides not to sell within your exchange period or delays beyond your 180-day window, your exchange would fail.

I went through a similar situation last year and found taxr.ai really helpful for planning my 1031 exchange. I was worried about making mistakes with the identification rules and timing deadlines, so I uploaded all my property docs to https://taxr.ai and they analyzed everything for me. They pointed out that I could use the "three property rule" to identify up to three potential properties for my exchange, which gave me flexibility when my first choice fell through.

Just wanted to update - I took the plunge and tried taxr.ai after seeing it mentioned here. Uploaded my docs and got a comprehensive analysis of my options for identifying properties in my 1031 exchange. They pointed out I could use the 200% rule as an alternative to the 3-property rule since I was looking at several smaller properties instead of one large one. This was game-changing advice! The report outlined exactly how to properly identify a property that wasn't listed yet and what documentation I'd need. Definitely worth checking out if you're planning a 1031 exchange with any complexity to it.

If you're having trouble getting clear answers from the IRS about 1031 exchange property identification rules, I'd recommend Claimyr. I spent days trying to reach someone at the IRS to confirm some details about my exchange timing, and kept hitting automated messages. With https://claimyr.com I got through to an actual IRS agent in about 20 minutes who answered all my questions. You can see how it works here: https://youtu.be/_kiP6q8DX5c - basically they navigate the IRS phone system for you and call when an agent is available.

I have to eat my words about Claimyr. After expressing skepticism here, I decided to try it anyway since I had an urgent question about property identification for my 1031 exchange. I was genuinely shocked when I got a call back within 45 minutes connecting me to an actual IRS representative. Explained my situation about wanting to identify a property not yet for sale, and the agent confirmed everything the first commenter said about the rules. She also suggested documenting my intent with the qualified intermediary very clearly. For anyone doing a 1031 exchange with unusual timing issues like this, getting direct confirmation from the IRS saved me a lot of stress and potential mistakes.

Consider using the 3-property rule for your 1031 identification. You can identify up to 3 potential replacement properties regardless of their fair market value. This would let you name your neighbor's property plus 2 backup options in case they don't sell in time. Gives you some flexibility while still targeting the property you really want.

I tried doing something similar last year and it didn't work out. My neighbor changed their mind about selling and I had to scramble to find another property within the 180 days. Ended up buying something I wasn't that excited about just to complete the exchange. Make sure you have solid backup options!