How to File IRS Form 8824 for a 1031 Exchange
To file IRS Form 8824 for a 1031 exchange, report the exchange with your federal tax return for the year the relinquished property closed, providing property descriptions, dates, fair market values, adjusted basis, realized gain, and recognized gain (including any boot).
Before you start
Form 8824 is how the IRS learns about your 1031 exchange. File it with your federal return for the year the relinquished property closed. Here's the basic walkthrough — work with your CPA for the specifics.
What you need
- Form 8824 (current year)
- Closing documents from relinquished and replacement properties
- QI final accounting statement
- Your basis calculations
- Any Form 4797 or Schedule D forms affected
Steps
- Step 01
Gather closing documents
You'll need settlement statements (HUD-1 or ALTA) from both the relinquished and replacement properties, the QI's final accounting, and any documents evidencing basis adjustments over your holding period.
- Step 02
Identify all parties and properties (Part I)
Part I asks for the description of relinquished and replacement properties, dates of transfer, and whether the parties were related. Be precise — use legal descriptions or APNs, not nicknames.
- Step 03
Compute gain or loss (Part III, lines 15-25)
The calculation identifies your realized gain (fair market value of what you received minus adjusted basis of what you gave up), then determines the portion recognized (taxable) and deferred. Boot received is recognized as gain up to the realized gain.
- Step 04
Calculate recognized gain from boot
Cash boot (excess proceeds not reinvested) plus mortgage boot (reduction in debt not offset by new debt or equity) triggers recognized gain to the extent of realized gain. The form walks through this math.
- Step 05
Compute the new basis in the replacement property
Your basis in the replacement property equals your basis in the relinquished property plus any additional cash/debt you contributed, minus boot received, plus any gain recognized. This new basis carries forward and affects future depreciation and gain calculations.
- Step 06
Handle related-party exchanges (Part II)
If you exchanged with a related party, Part II requires additional disclosure. Related-party exchanges have a two-year holding requirement on both sides — disposition within two years typically disqualifies the exchange (with narrow exceptions).
- Step 07
Coordinate with Form 4797 and Schedule D
If you received boot or have recognized gain, it may flow to Form 4797 (for business property) or Schedule D (for investment property). Your CPA coordinates these forms.
- Step 08
File by federal tax return due date
Form 8824 is filed with your federal return for the year the relinquished property closed. If you closed the downleg in December and the replacement in the following year, Form 8824 still attaches to the prior year's return. Extensions apply normally.
Common mistakes
- Failing to identify that an exchange occurred — some taxpayers mistakenly don't file 8824
- Miscalculating basis in the replacement property
- Missing the related-party disclosure
- Not reconciling with Form 4797 and Schedule D
- Filing 8824 in the wrong tax year (it's the year of the relinquished property sale)
Frequently asked questions
Who files Form 8824 — me or my QI?
You (the taxpayer) file Form 8824 with your federal return. The QI provides transaction information but does not file on your behalf. Your CPA prepares and includes Form 8824 with your annual return.
What if I missed the 180-day deadline?
If the exchange fails (missed 45-day or 180-day deadline, or any other disqualification), the relinquished property sale is treated as a fully taxable sale. Report the gain on Form 4797 (or Schedule D) without Form 8824. You do not file Form 8824 for a failed exchange.
Do I need to attach Form 8824 to each state return?
Depends on the state. Most states that conform to federal 1031 accept the federal treatment without separate filing, though some states (notably California, Massachusetts, Montana, Oregon) require additional forms or annual tracking filings. Verify with your state-specific CPA.