Form 8824 (2025+): Advisor Walkthrough and Common Mistakes

Why Form 8824 gets filed even when no tax is due

Every 1031 exchange has to be reported on Form 8824, including years when not a dollar of gain is recognized. The form is how the IRS tracks which properties changed hands, when, and how much gain was deferred versus recognized. Section 1031 applies whether or not the form is filed, but an unfiled 8824 leaves the return without the reporting the IRS requires and invites an adjustment the client must then defend.

The confusion is understandable. No gain recognized this year feels like nothing to report. But the form is how the return documents the deferral. File Form 8824 with the return for the tax year in which the relinquished property was transferred, even if the replacement is received the next year. For a related-party exchange, also file it for each of the two following years.

The form runs in three parts, each asking for something different.

Part I: the exchange itself

Part I captures the basic facts: what was sold, when, what was bought, and when.

The 45/180 timeline

Lines 3 through 6 ask for the date the relinquished property was originally acquired, the date it was actually transferred, the date the replacement was identified in writing, and the date the replacement was actually received.

The transfer date is the closing date of the property disposed of. The identification date is the date the replacement was actually identified in writing, and the receipt date is the date it was actually received. Both must fall inside the 45- and 180-day limits.

These are exact counts, not estimates. Writing "close to" or "approximately" invites trouble, because the IRS reads the calendar literally. A sale on March 15 puts the identification deadline on April 29, 45 days later. An identification dated April 30 is a day late and invalid. The receipt has to land on or before day 180: a closing on day 179 or 180 is compliant, a closing on day 181 fails the whole exchange.

Property descriptions

Lines 1 and 2 describe the relinquished and replacement properties. Write enough that a stranger could identify the exact parcel: the legal description, or at minimum street address, city, state, and county.

"Rental property in California" or "commercial real estate" is the kind of vague entry that draws questions. The IRS is checking that the property sold and the property bought are genuinely like-kind, and a specific description is what shows the rule was followed.

Values

Values go in Part III, not Part I: the fair market value of the replacement on Line 16, and the adjusted basis of the relinquished property on Line 18 together with net amounts paid and exchange expenses.

Adjusted basis is the relinquished property's cost as carried on the client's books, reduced by accumulated depreciation. Not the purchase price from years ago, but the current figure from the tax return or depreciation schedule. The relinquished FMV is usually the gross sale price on the closing statement, unless liabilities complicate it (more on boot below). The replacement FMV is the purchase price on the replacement closing statement.

The qualified intermediary

Form 8824 has no line for a qualified intermediary. Nearly every modern 1031 uses one, so keep its name, address, and EIN in the file with the exchange records.

The QI is the conduit that keeps the exchange non-taxable: sale proceeds flow to the QI rather than to your client. Without one, the IRS can treat the deal as a sale followed by a reinvestment, which is taxable. Keep the engagement letter, the exchange agreement, and the QI's accounting statement showing how proceeds moved from sale to replacement purchase.

Part II: related-party exchanges

Part II applies when the exchange was made with a related party, directly or through an intermediary: client and spouse, client and child, or entities the client controls.

The rule is a two-year hold. Both properties must be kept for at least two years after the exchange date. Dispose of either one inside that window and the entire original gain is recaptured, taxable in the year of disposition.

A family land swap

Maria exchanges raw land (basis $100K, FMV $400K) for raw land owned by her sister (FMV $400K). Both sign the exchange agreement on Day 0.

If her sister sells that land on Day 400, inside the two-year window, Maria has to report the recapture. Her $300K deferred gain becomes recognized, and she files Form 8824 again that year to report it.

This is the follow-up that gets missed. The advisor files in Year 1 when the exchange completes, then stops watching the properties. If a related-party disposition happens and no Form 8824 follows, the IRS assesses the tax when it examines the return. A calendar reminder for two years out, when the monitoring period ends, closes the gap.

Part III: the gain calculation

Part III is the arithmetic. It computes the realized gain, adjusts for boot received or paid, and splits the result into recognized gain and deferred gain.

Realized gain is the amount realized minus the adjusted basis of the relinquished property. The amount realized is the total consideration - cash plus any liability the buyer assumes or pays off (an old mortgage or note) - minus selling expenses (commission, attorney fees, title insurance, escrow). A contract price usually already includes the loan; do not add it twice.

A worked example

Maria sells a rental property.

Sale side (relinquished)

• Gross sale price: $925,000 (includes the loan the buyer assumes)
• Old mortgage assumed by buyer: $180,000
• Realtor commission (6% of $925,000): $55,500
• Other closing costs (attorney, title): $4,500
• Total selling expenses: $60,000
• Adjusted basis: $310,000 (original cost $450,000 minus $140,000 accumulated depreciation)

Purchase side (replacement)

• Purchase price: $975,000
• New mortgage: $250,000
• Cash Maria paid at closing: $52,000
• Exchange expenses (QI fees, 1031 advisor): $12,000, paid by the QI, which applies the remaining $673,000 to the purchase

Step 1, amount realized. $925,000 contract price (which already includes the $180,000 loan the buyer assumes) minus $60,000 selling expenses and $12,000 exchange expenses = $853,000.

Step 2, realized gain. $853,000 minus the $310,000 adjusted basis = $543,000. That is the full economic gain.

Step 3, boot received. Boot is anything non-like-kind, including a net reduction in debt. Maria's debt went from $180,000 to $250,000, an increase of $70,000, so there is no mortgage boot. She received no cash; she added $52,000. Boot received is $0. (Her $52,000 is cash paid, which adds to basis but creates no recognized gain.)

Step 4, recognized gain. Recognized gain is the lesser of realized gain or boot received: the lesser of $543,000 and $0, which is $0. Maria recognizes nothing and defers $543,000.

Step 5, new basis. New basis is the old adjusted basis, plus the $70,000 increase in debt and the $52,000 of cash paid, plus recognized gain, minus boot received: $310,000 + $70,000 + $52,000 + $0 - $0 = $432,000. (Check: the $975,000 price minus the $543,000 deferred gain.)

Maria paid $975,000 for the replacement, so why is her basis only $432,000? Because basis carries over from the old property instead of resetting to the new price. The $543,000 gap between the $975,000 price and the $432,000 carryover basis is gain not yet recognized, riding inside the property, waiting to surface if she ever sells without exchanging again.

Land allocation from the appraisal splits the $432,000 basis:

• Land (35%): $151,200, not depreciable
• Building (65%): $280,800, depreciated over 27.5 years at $10,211 a year (if Maria elects under Treas. Reg. §1.168(i)-6 to treat the whole basis as newly placed in service; otherwise the carried-over part keeps the old schedule)

Had the replacement cost only $500,000, the basis would be lower and recognized gain higher, because the smaller purchase would leave Maria with mortgage or cash boot.

Mapping the numbers onto the form

Maria's example lands on the form like this.

Part I

• Line 1, property given up: legal description or street address
• Line 2, property received: legal description or street address
• Line 3, date the property given up was originally acquired
• Line 4, date Maria actually transferred it: the exact sale closing date
• Line 5, date the replacement was identified in writing: the actual date, on or before Day 45
• Line 6, date Maria actually received the replacement: the exact closing date, on or before Day 180
• Line 7, related party: No, so Part II is skipped
• No line asks for values in Part I; they go in Part III
• No line asks about a qualified intermediary; keep the exchange agreement and QI accounting in the file

Part III

• Line 15, cash and net liabilities assumed by the buyer, less exchange expenses: $0, because Maria took on more debt than she was relieved of. Line 16, value of the replacement: $975,000. Line 18: $432,000, her $310,000 basis plus the $122,000 she added in cash ($52,000) and net new debt ($70,000); the $72,000 of selling and exchange expenses came out of the sale proceeds, so they are already reflected and are not added again
• Line 19, realized gain: $543,000
• Line 23, recognized gain: $0
• Line 24, deferred gain: $543,000
• Line 25, basis of the replacement: $432,000

Line numbers follow the current IRS Form 8824; confirm them against the instructions for the year you file.

Six mistakes that create audit exposure

1. Basis that ignores depreciation

A client bought a property ten years ago for $500,000 and tells you the basis is $500,000. But the building has been depreciating at $10,000 a year, so the real adjusted basis is $400,000. Pull the prior year's return and depreciation schedule rather than trusting memory.

2. Basis that isn't reduced by deferred gain

After an exchange, it's tempting to treat the replacement as a fresh purchase and put $975,000 on Line 25. The correct figure is the carryover basis, $432,000 in Maria's case. Lower basis means lower depreciation going forward, which routinely surprises clients. A basis tracker, shown to the client, explains why their tax basis sits so far below what they actually invested.

3. Dates written loosely

The 45-day identification and 180-day receipt deadlines are requirements, not suggestions. Count carefully and record the exact dates. If identification falls on April 29, the form says April 29, not "late April."

4. Skipping the form because gain is zero

Filing when zero gain is recognized is not optional; it is the point. The form is the documentation that a 1031 exchange happened at all. "Nothing to report" is the error, because the form is the record the IRS expects for every exchange.

5. Related-party exchanges with no follow-up

You file Part II in Year 1, then the two-year hold slips your mind. If the related party disposes of the property on Day 400 and no Form 8824 follows, the IRS finds it on audit. Set a tickler for 24 months from the exchange date to confirm both properties are still held, and file again immediately if one was sold.

6. Boot missed beyond cash

It's easy to check whether cash changed hands and stop there, ignoring mortgage boot and closing-cost boot. Boot is cash received, plus the drop from old debt to new debt, plus any non-like-kind property or non-qualifying closing costs paid from exchange funds. Run the debt math every time: old debt of $200K against new debt of $150K is $50K of mortgage boot unless the client adds $50K of cash at the replacement closing.

Documents to gather before you start

Collect these before preparing the form.

Relinquished side

1. Closing statement (HUD-1 or Closing Disclosure) showing sale price, old-debt payoff, commission, and closing costs
2. Depreciation schedule showing accumulated depreciation and current adjusted basis
3. Original purchase documentation to verify initial basis
4. Any prior Forms 8824, if this property came from an earlier 1031, to confirm the carryover basis

Exchange administration

5. Exchange agreement signed by client and QI, showing identification and receipt dates
6. QI accounting statement showing how proceeds moved from sale to acquisition
7. Identification letter from client or QI, confirming which replacement was identified and when

Replacement side

8. Closing statement showing purchase price, new mortgage, down payment, and closing costs
9. Property appraisal, if available, allocating value between land and building
10. Replacement deed

Supporting

11. All closing-cost invoices (attorney, title, inspections, appraisals)
12. Any QI correspondence on boot or deferred-gain calculations

If the exchange involves mortgage or cash boot, also request:

13. An itemized closing-cost breakdown to identify which costs came from exchange proceeds
14. Any cash distributions from the QI, even if zero

Related resources

For basis mechanics, see Basis Tracking After a 1031 Exchange: Advisor Worksheet and Example. For the different flavors of boot, see Boot for Advisors: Cash Boot, Mortgage Boot, and Hidden Boot. To estimate the tax a taxable sale would trigger, use the capital gains tax calculator.