Can I file Form 8824 if the replacement property hasn't closed by December 31?

Yes. For a deferred exchange, Form 8824 is filed for the tax year in which the relinquished property is transferred, even if the replacement property closes in the following calendar year, as long as the 180-day deadline is satisfied. Enter the identified replacement property on Part I and note that the exchange is open at year-end. If the exchange ultimately fails, an amended return may be required.

Does a like-kind exchange eliminate the gain permanently?

No — the gain is deferred, not eliminated. The deferred gain reduces the adjusted basis of the replacement property, so when that property is eventually sold in a taxable transaction, the built-in gain is recognized at that time. The benefit is the time value of money from deferral and the ability to potentially step up basis at death through the estate tax rules.

Can I use Section 1031 to exchange a rental property for a vacation home I plan to use personally?

Not directly. Section 1031 requires both the relinquished and replacement properties to be held for business use or investment — personal use property does not qualify. The IRS has issued guidance (Rev. Proc. 2008-16) providing a safe harbor for vacation or second homes, which generally requires the taxpayer to rent the replacement property at fair market value for at least 14 days per year and limit personal use to no more than 14 days or 10% of rental days during a two-year holding period.

What happens if I receive a small amount of cash back from a 1031 exchange?

Any cash received from the exchange is considered boot and triggers gain recognition up to the lesser of the boot amount or the realized gain. If you realize a $200,000 gain but receive only $5,000 in cash, you must recognize $5,000 of gain in the current year and defer the remaining $195,000. The character of the recognized gain (ordinary recapture versus Section 1231 gain) depends on the prior depreciation history of the relinquished property.

Is Form 8824 required even if there is no recognized gain?

Yes. Form 8824 must be filed whenever a like-kind exchange occurs, regardless of whether any gain is recognized. The form documents the exchange, establishes the deferred gain, and sets the carryover basis of the replacement property. Failure to file it — even for a zero-gain exchange — may result in the IRS disallowing the deferral and treating the transaction as a fully taxable sale.

How does a related-party like-kind exchange work on Form 8824?

Part I of Form 8824 includes specific questions about related-party exchanges. Under Section 1031(f), if you exchange property with a related party (defined under Sections 267(b) or 707(b)(1)), both parties must hold their respective properties for at least two years. If either party disposes of the property within two years, the deferred gain generally becomes taxable in the year of that subsequent disposition. Most CPA firms advise avoiding related-party exchanges unless the two-year hold is commercially realistic and well-documented.

Real Estate

Form 8824: Like-Kind Exchanges

Reports like-kind exchanges of business or investment real property under Section 1031, which allows deferral of gain recognition when exchanging similar properties.

Download Form 8824 PDF About on IRS.gov Instructions PDF

Overview

IRS Form 8824 is the form used to report a like-kind exchange of business or investment property under Section 1031 of the Internal Revenue Code. A like-kind exchange allows a taxpayer to defer recognition of gain (or loss) realized on the disposition of qualifying property, provided the proceeds are reinvested in property of a like kind within the prescribed time limits. The deferral is not permanent — instead, the deferred gain is embedded in the adjusted basis of the replacement property and will be recognized when that property is eventually sold in a taxable transaction.

The form captures the essential economics of the exchange: what was given up, what was received, the fair market values involved, any boot (cash or non-like-kind property) received, and the resulting realized gain, recognized gain, and deferred gain. If boot is received, a portion of the gain must be recognized in the year of the exchange, even if the taxpayer otherwise qualifies for deferral. Section 1031, as amended by the Tax Cuts and Jobs Act of 2017, now applies only to real property — personal property exchanges no longer qualify for like-kind exchange treatment for tax years beginning after December 31, 2017.

Form 8824 is filed with the taxpayer's federal income tax return (Form 1040, 1065, 1120, 1120-S, etc.) for the year in which the exchange is initiated. For deferred (Starker) exchanges, the form is filed for the year in which the relinquished property is transferred, even if the replacement property has not yet been received by year-end, as long as the 45-day identification and 180-day closing deadlines are satisfied. The form works in conjunction with Form 4797 (Sales of Business Property) and Schedule D when recognized gain must be reported.

Who Files This Form?

Any taxpayer — individual, partnership, corporation, S corporation, trust, or estate — that transferred business or investment real property and received like-kind real property in return must file Form 8824 for the tax year in which the exchange began. This includes both simultaneous exchanges and deferred (Starker) exchanges structured through a qualified intermediary.

The threshold question is whether both the relinquished property and the replacement property qualify as real property held for productive use in a trade or business or for investment. Personal residences do not qualify. Inventory, dealer property, and property held primarily for sale also do not qualify under Section 1031. Partnership interests, securities, and other intangible personal property are similarly excluded.

For deferred exchanges, the taxpayer must identify replacement property within 45 days of transferring the relinquished property and must close on the replacement property within 180 days (or the due date of the return including extensions, whichever is earlier). If these deadlines are missed, the entire transaction becomes a taxable sale and Form 8824 is still filed to document the failed exchange — though the gain is fully recognized.

Related-party exchanges trigger special rules under Section 1031(f). If either party to the exchange is a related person (as defined under Sections 267(b) or 707(b)(1)), both parties must hold their respective properties for at least two years following the exchange. A disposition within that window generally triggers recognition of the previously deferred gain.

Taxpayers who complete multiple exchanges in the same tax year must file a separate Form 8824 for each exchange. If the exchange involves a partnership interest or a tenancy-in-common interest, additional analysis is required to confirm the interest constitutes real property for Section 1031 purposes.

Key Fields

Part I, Line 1: Description of like-kind property given up

Enter a clear description of the relinquished property — address, property type (e.g., commercial warehouse, rental duplex), and any relevant identifying details. Vague descriptions increase audit risk; be as specific as the property deed or closing statement.

Part I, Line 2: Description of like-kind property received

Describe the replacement property with the same specificity as Line 1. For deferred exchanges where closing has not yet occurred by year-end, enter the property identified within the 45-day window. If multiple replacement properties are received, attach a schedule.

Part I, Lines 5–6: Dates of transfer and identification

Line 5 is the date the relinquished property was transferred; Line 6 is the date the replacement property was identified (for deferred exchanges). These dates are critical for verifying compliance with the 45-day identification and 180-day closing deadlines. An incorrect date can expose the entire deferral to challenge.

Part II, Line 12: Fair market value of like-kind property received

Enter the FMV of the replacement property on the date received. This is typically supported by an appraisal, the contract price, or settlement statement. The IRS may scrutinize FMV if it affects the amount of boot or gain recognized, so documentation is essential.

Part II, Line 15: Cash and other (non-like-kind) property received (boot)

Boot includes cash received, debt relief in excess of liabilities assumed on the replacement property, and the FMV of any non-like-kind property received. Boot triggers gain recognition up to the amount of realized gain — this is the most common reason a Section 1031 exchange results in partial taxable income.

Part II, Line 18: Adjusted basis of like-kind property given up

This is your tax basis in the relinquished property at the time of exchange — original cost plus capital improvements, less accumulated depreciation. Errors here directly distort realized gain, deferred gain, and the carryover basis in the replacement property. Pull this from depreciation schedules, not just the purchase price.

Part II, Line 19: Realized gain (or loss)

The total economic gain or loss computed as FMV of everything received minus the adjusted basis of the relinquished property plus liabilities assumed by the other party. A realized loss in a like-kind exchange is generally not recognized and is not deductible — it is folded into the basis of the replacement property.

Part II, Line 23: Recognized gain

The portion of realized gain that must be included in income in the current year, generally limited to the lesser of realized gain or boot received. This amount flows to Form 4797 or Schedule D depending on the nature of the property. Even a small amount of boot can trigger depreciation recapture under Sections 1245 or 1250.

Part II, Line 25: Deferred gain or (loss)

The portion of realized gain deferred under Section 1031 — computed as realized gain minus recognized gain. This is not a current deduction; it represents a reduction to the carryover basis of the replacement property. Track this figure carefully because it determines the built-in gain on future disposition.

Part II, Line 26: Basis of like-kind property received

The adjusted basis of the replacement property for future depreciation and gain calculations. It equals the FMV of the replacement property minus the deferred gain (equivalently, it is the basis of the relinquished property adjusted for boot and gain recognized). This basis must be consistently used going forward on depreciation schedules.

Filing Deadlines

Due Date

April 15

With Extension

October 15

Late Filing Penalty

Filed with income tax return; failure to properly report a like-kind exchange may result in disallowance of deferral.

Step-by-Step Instructions

1
Gather all closing documents for both the relinquished and replacement properties, including HUD-1 or ALTA settlement statements, the qualified intermediary exchange agreement, property appraisals, and the existing depreciation schedule for the relinquished property.
2
Confirm the exchange meets the threshold requirements under Section 1031 as amended by TCJA: both properties must be real property held for business or investment use, the 45-day identification deadline must have been met, and the 180-day closing deadline (or return due date, if earlier) must be satisfied.
3
Complete Part I by entering descriptions of both the relinquished and replacement properties, the relevant transfer and identification dates, and whether any related parties are involved. If related parties are involved, check the applicable box and be prepared to attach an explanation if either party disposed of the property within two years.
4
Calculate the fair market values of all properties and boot items involved. Obtain written appraisals if the FMV is not clearly established by an arm's-length contract price. Compute net boot received (cash received plus FMV of non-like-kind property received plus liabilities relieved, minus liabilities assumed on the replacement property).
5
Enter the adjusted basis of the relinquished property from the depreciation schedule on Line 18, then compute realized gain on Line 19. Double-check this figure against the settlement statement to ensure no selling expenses or exchange costs have been omitted from the basis or proceeds calculation.
6
Determine the recognized gain on Line 23 as the lesser of realized gain or net boot received, then compute the deferred gain on Line 25. Compute the carryover basis of the replacement property on Line 26 and immediately update the depreciation schedule to reflect this new basis.
7
Transfer the recognized gain to the appropriate form: use Form 4797 for Section 1231 property (business real estate held more than one year), and ensure depreciation recapture under Section 1250 unrecaptured gain is properly characterized. Update Schedule E if the replacement property is rental real estate.
8
If the taxpayer completed multiple like-kind exchanges during the year, complete a separate Form 8824 for each exchange and attach all copies to the return. Summarize totals on the primary Form 8824 if instructed by the form.
9
Attach Form 8824 to the taxpayer's income tax return and file by the April 15 deadline, or the extended due date if an extension is filed. Retain all exchange documentation — including the qualified intermediary closing package — for at least three years beyond the date the replacement property is sold, as the deferred gain affects that future return.

Common Mistakes to Avoid

Using the contract price rather than the adjusted tax basis to compute realized gain.

Always start with the depreciation schedule to establish the adjusted basis of the relinquished property. The adjusted basis reflects accumulated depreciation, which is frequently much lower than the original purchase price, resulting in a larger gain than expected.

Failing to recognize that debt relief constitutes boot.

If the mortgage on the relinquished property exceeds the mortgage assumed on the replacement property, the net debt relief is treated as cash boot received. Structure exchanges so that the replacement property carries equal or greater debt, or be prepared to recognize the gain attributable to net debt relief.

Overlooking depreciation recapture even when no cash boot is received.

For real property, unrecaptured Section 1250 gain (taxed at up to 25%) is generally not triggered in a fully deferred exchange, but any recognized gain — even from a small amount of boot — must be characterized correctly. Work through the depreciation recapture analysis before finalizing Line 23.

Missing the 45-day identification or 180-day closing deadline and still filing as a like-kind exchange.

If either deadline is missed, the exchange fails and the full gain is taxable. Form 8824 should still be filed to document the facts, but the gain must be reported on Form 4797 or Schedule D. Do not defer gain on a failed exchange — it is one of the most common audit triggers in real estate.

Computing the wrong carryover basis in the replacement property and depreciating it incorrectly going forward.

The replacement property basis from Line 26 must be entered precisely on the depreciation schedule. Many practitioners also need to allocate basis between land and improvements and, for exchanges of different property types, apply the residual method. A basis error here will compound over every future year of depreciation.

Not filing a separate Form 8824 for each exchange when multiple exchanges occur in the same year.

The IRS instructions require a separate form for each like-kind exchange. Combining multiple exchanges on a single form obscures the facts of each transaction and may result in an incorrect calculation of recognized versus deferred gain.

Frequently Asked Questions

Realized gain is the total economic gain computed as the fair market value of everything received minus the adjusted basis of the property given up — it represents the full profit from the transaction. Recognized gain is the portion that must actually be reported as taxable income in the current year, which is generally limited to boot received. In a fully qualifying exchange with no boot, recognized gain is zero even if the realized gain is substantial.

Related Forms

Form 4797

Sales of Business Property

Schedule D

Capital Gains and Losses

Schedule E

Supplemental Income and Loss

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