How to Report a 1031 Exchange on Your Tax Return: Form 8824 Line by Line

To report a 1031 exchange on Form 8824, file the form with your tax return for the year you transferred the relinquished property, complete all three parts using your settlement statements and closing dates, and carry any recognized gain to Form 4797 or Schedule D.¹ Deferral does not mean silence. The form documents the properties, the dates, the money that changed hands, and the new basis you carry into the replacement. Get the details wrong and you risk losing the deferral entirely, converting what was supposed to be a tax-free swap into a fully taxable sale.

What to Gather Before You Open the Form

Every line on Form 8824 traces back to a document. Pull these together first and the form takes an hour instead of a weekend.

Dates matter as much as dollars. You need the date you originally acquired the relinquished property, the date you transferred it, the date you identified the replacement in writing, and the date you received the replacement. All four go directly onto the form, and the IRS uses the last three to confirm you met the 45-day identification window and the 180-day closing window.²

Financial records drive the gain calculation. Gather settlement statements from both sides of the deal. Since 2015, most residential closings use a Closing Disclosure rather than the older HUD-1, though HUD-1s still appear in commercial transactions. Either document shows the sale price, closing costs, prorations, and any cash you received or paid.

Calculate the adjusted basis of the relinquished property: original purchase price, plus capital improvements, minus all depreciation you claimed or should have claimed. Depreciation is the number most people undercount. The IRS does not accept “I forgot to deduct it” as a reason to skip it in your basis calculation. If you took depreciation, basis is reduced. If you should have taken it and didn’t, basis is still reduced.

Track any boot. Boot is anything of value you received in the exchange that is not like-kind real property. Leftover cash is the most common form. Net mortgage relief also counts: if the debt on your old property was $300,000 and the loan on the replacement is only $200,000, the $100,000 difference is taxable boot even if you reinvested every dollar of sale proceeds.³ You can offset mortgage boot by adding your own cash to the deal, which is worth planning before closing rather than discovering at tax time.

Itemize exchange expenses. Brokerage commissions, escrow and title fees, attorney fees, and the qualified intermediary’s fee generally reduce your realized gain. Loan origination fees and prorations do not count as exchange expenses and cannot be used to offset gain.

Part I: Property Details and the Four Key Dates

Line 1 asks for a description of the property you gave up, and Line 2 for the property you received. A street address and property type is sufficient. Lines 3 through 6 capture the four dates listed above.² If the dates on Lines 5 and 6 fall outside the 45-day and 180-day windows, the exchange fails on its face.

Part II: Related-Party Exchanges

If you exchanged property with a family member, a controlled entity, or anyone else who qualifies as a related person under the tax code, Part II applies. Section 1031(f) imposes a two-year holding requirement: if either party disposes of the property received within two years, the deferred gain snaps back and becomes taxable as of the disposal date.⁴ Limited exceptions apply for death, involuntary conversions, and transactions where the IRS determines tax avoidance was not a principal purpose.

The instructions are blunt about one scenario: if a related party sold property into the exchange through a qualified intermediary for cash, do not report the transaction on Form 8824 at all unless one of the specific exceptions on Line 11 applies. Report it as a regular sale.⁵ Getting this wrong triggers retroactive taxation of the entire gain.

Part II also has a follow-up obligation. In each of the two years after a related-party exchange, you file Form 8824 with Parts I and II only, confirming the property is still held.⁵

Part III: Gain, Boot, and New Basis

Part III is where the math happens.

Line 15: total value of non-like-kind property and cash received, net of liabilities you assumed and exchange expenses.
Line 16: fair market value of the like-kind property you received.
Line 17: Line 15 plus Line 16, the total consideration.
Line 18: adjusted basis of the property you gave up, plus exchange expenses not already used on Line 15, plus any net cash or liabilities you paid to the other party.
Line 19: realized gain (Line 17 minus Line 18).
Line 22: recognized gain, the portion actually taxable this year. In a clean exchange with no boot, this is zero.
Line 24: deferred gain.
Line 25: basis of your replacement property.¹

Line 25 is the number you will use for depreciation on the replacement and for calculating gain when you eventually sell it. Save that figure somewhere permanent.

If the exchange involved multiple groups of like-kind property, or non-like-kind property on both sides, skip Lines 12 through 18. Attach a separate statement showing your own gain calculations and enter the results on Lines 19 through 25.¹

Where Recognized Gain Actually Gets Taxed

Form 8824 calculates the gain; it does not tax it on its own. Any recognized gain from Line 22 or Line 36 has to land on the correct schedule attached to your return. Real property used in a trade or business flows to Form 4797, Sales of Business Property, on Line 5 or Line 16.⁶ A capital asset held for investment goes on Schedule D.¹

Individuals attach Form 8824 and any related gain schedules to Form 1040. Partnerships file it with Form 1065, S corporations with Form 1120-S, and C corporations with Form 1120.⁷

The Basis You Carry Forward

The replacement property’s depreciable basis is not its purchase price. It is the carryover basis from Line 25. Buy the old property for $500,000, take $120,000 in depreciation, then exchange into a $600,000 property in a fully deferred trade, and your depreciable basis starts at $380,000, not $600,000. This trips up a lot of people and produces years of overstated depreciation deductions if handled wrong.

Depreciation recapture under Section 1250 is deferred along with the capital gain. The accumulated depreciation from the old property carries over to the replacement as additional depreciation.⁸ When you later sell the replacement in a taxable sale, that carried-over depreciation gets recaptured, taxed at up to 25 percent as unrecaptured Section 1250 gain. Successive exchanges keep deferring it. Each new exchange inherits the depreciation history of every property in the chain, which is why reconstructing basis after two or three trades gets expensive when the IRS asks.

Don’t Forget the Interest From Your Qualified Intermediary

Any interest earned on the sale proceeds while your qualified intermediary holds them is taxable income to you, regardless of whether you completed the exchange. The QI should issue Form 1099-INT for interest of $10 or more.⁹ Report it on your return separately from the exchange itself. People overlook this constantly, and it shows up as a CP2000 notice a year later.

When the Exchange Failed

If you missed the 45-day identification window or the 180-day closing deadline, the transaction does not qualify for deferral and the IRS treats it as an ordinary sale.⁵ Do not file Form 8824 for a failed exchange. Report the sale on Schedule D or Form 4797, depending on whether the property was a capital asset or business property.

One possible relief: if the exchange spans two tax years and you made a genuine attempt to complete it, the installment method under IRC 453 may let you defer recognizing the gain until the year you actually receive the proceeds from the QI. Report the sale on Form 6252, Installment Sale Income, for the year of the relinquished property closing, then report the funds in the year the QI releases them. The installment method requires a bona fide intent to complete the exchange and does not apply if you never planned to buy replacement property. Keep the identification letters, inspection reports, and communications with brokers and the QI. The IRS may challenge installment treatment if the exchange looks like it was never realistic.

Deadlines and Extensions

Form 8824 is due with your tax return. For most individuals that means April 15; with an extension, typically October 15.¹ Filing the extension also extends the 180-day replacement period when the original due date would have cut it short.⁴ If you transferred the old property in late November and your return is due April 15, the extension buys you the full 180 days.

Federally declared disasters can extend both the 45-day and 180-day exchange deadlines for affected taxpayers. The IRS typically postpones deadlines by 120 days or until the end of the designated disaster relief period, whichever is later. Eligibility depends on whether your principal residence or business is in the disaster area, or whether your tax records are maintained there. These postponements are not automatic; you have to fall within the IRS’s defined affected-taxpayer criteria for the specific declaration.¹⁰

Keep a full copy of the return, Form 8824, all settlement statements, the QI’s records, and your written identification of replacement properties. The IRS can audit exchanges for three years from the filing date, and the related-party reporting obligation runs two years after the exchange. Because basis errors compound through successive exchanges, keeping these records indefinitely is safer.

Penalties for Getting It Wrong

An accuracy-related penalty of 20 percent applies to any underpayment caused by negligence, a substantial understatement of income, or a substantial valuation misstatement.¹¹ Overstating the basis of your relinquished property or underreporting boot are the usual triggers in exchange audits. Every figure on the form should match your settlement statements exactly.

Deliberate fraud raises the stakes. Willful tax evasion is a felony carrying up to five years in prison and fines of up to $100,000 for individuals or $500,000 for corporations.¹² Criminal prosecution in exchange cases is rare, but intentionally hiding boot or fabricating property values is exactly the kind of conduct the IRS escalates.

State Returns Are a Separate Question

Federal deferral does not guarantee state deferral. Most states follow Section 1031 for state income tax purposes, but not all. Pennsylvania, for example, does not recognize like-kind exchange deferrals at the state level. Several states also impose withholding when non-residents sell real property within their borders, and that withholding applies regardless of whether the federal exchange qualifies for deferral. Rates vary but generally fall between 2 and 10 percent of either gross sales price or estimated gain. If your exchange involves properties in different states, check both states’ rules before assuming the federal deferral carries through.

1
Internal Revenue Service. Instructions for Form 8824 (2025)
2
Internal Revenue Service. Form 8824 – Like-Kind Exchanges (2025)
3
Internal Revenue Service. Like-Kind Exchanges – Real Estate Tax Tips
4
Office of the Law Revision Counsel. 26 USC 1031 – Exchange of Real Property Held for Productive Use or Investment
5
Internal Revenue Service. 2025 Instructions for Form 8824 – Like-Kind Exchanges
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Internal Revenue Service. Instructions for Form 4797 (2025)
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Internal Revenue Service. About Form 8824 – Like-Kind Exchanges
8
Internal Revenue Service. Publication 544 (2025) – Sales and Other Dispositions of Assets
9
Internal Revenue Service. Instructions for Forms 1099-INT and 1099-OID
10
Internal Revenue Service. Like-Kind Exchanges Under IRC Section 1031
11
Office of the Law Revision Counsel. 26 USC 6662 – Imposition of Accuracy-Related Penalty on Underpayments
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Office of the Law Revision Counsel. 26 USC 7201 – Attempt to Evade or Defeat Tax