While a 1031 Exchange does provide the opportunity for tax savings, it is still important to report each exchange to the IRS. This enables the IRS to recognize the profits used from your relinquished property should not be taxed according to boilerplate capital gains rates, but should rather be deferred since the funds were transferred through a qualified intermediary into the equity share of a newly acquired property.
What Is Form 8824?
The IRS created Form 8824 to help real estate investors to report their exchanges on their tax returns. The IRS explains: “If you made more than one like-kind exchange, you can file a summary on one Form 8824 and attach your own statement showing all the information requested on Form 8824 for each exchange.”
What Should I Report on Form 8824?
- When reporting an exchange to the IRS using Form 8824, investors should include:
- Descriptions of the properties exchanged
- Dates that properties were identified and transferred
- Any relationship between the parties to the exchange
- Value of the like-kind and other property received
- Gain or loss on sale of other (non-like-kind) property given up
- Cash received or paid; liabilities relieved or assumed
- Adjusted basis of like-kind property given up; realized gain
See the IRS document Instructions for Form 8824: Like-Kind Exchanges (and Section 1043 Conflict-of-Interest Sales).