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A 1031 exchange can defer the entire gain on an investment property, no matter how large. The tax does not vanish; it rides along into the replacement property you buy. Either way, the exchange has to be reported. Form 8824, "Like-Kind Exchanges," is where it goes. You file it with your federal return for the year the relinquished property's sale closes, even when the recognized gain is zero.
The form has four parts. Parts I and II are mostly descriptions and dates. Part III is the arithmetic that decides how much gain you defer and what basis you carry forward. Part IV is only for federal officials' conflict-of-interest sales. Below is a line map, then one exchange carried all the way through.
Form 8824 line map
Section | Lines | What it covers |
|---|---|---|
Part I - Information on the exchange | 1-7 | Descriptions of the relinquished and replacement properties, the dates the relinquished property was acquired and transferred, the dates the replacement was identified and received, and whether the other party is related |
Part II - Related party exchanges | 8-11 | Applies only if you bought from or sold to a related party: a close family member (spouse, sibling, parent, grandparent, child or grandchild) or an entity you own more than 50% of; skip if not applicable |
Part III - Realized gain or (loss), recognized gain, and basis of like-kind property received | 12-25 | Any non-like-kind property you gave up, boot received net of exchange expenses, the replacement's value, your adjusted basis, realized gain, recapture, recognized gain, deferred gain, and the basis of the replacement property |
Part I: what to enter
Line 1 - Description of relinquished property. Use the street address: "123 Main Street, Denver, CO 80202." Add the legal description if you have it.
Line 2 - Description of the replacement property. The replacement's street address and legal description.
Line 3 - Date the relinquished property was originally acquired. The date you bought or received the relinquished property.
Line 4 - Date the relinquished property was transferred. The closing date of your sale.
Line 5 - Date replacement property was identified. The date your written identification reached your qualified intermediary (QI), the third party that holds the sale proceeds between the two closings.
Line 6 - Date replacement property was received. The closing date of your replacement purchase.
Line 7 - Was the exchange made with a related party? If yes, complete Part II. If no, move to Part III.
No identification-rule box. The form doesn't ask which identification rule you used. Keep your identification letter with your records instead.
Part III: the gain calculation (line by line)
The table below follows the line numbers on the current (2025) Form 8824 and the IRS instructions for Form 8824. Your CPA runs the math; the goal here is to see what each line is doing, especially the boot lines. Boot is any non-like-kind value you walk away with, such as cash or a reduction in your mortgage debt, and it is what turns deferred gain into taxable gain.
Line | Label | What to enter |
|---|---|---|
12‑14 | Other (not like-kind) property given up | Only if you also gave up property that isn't like-kind: its FMV (line 12), a description (12a), its adjusted basis (13), and the gain or loss on it (14). Most real estate exchanges skip these lines |
15 | Cash received, FMV of other property received, plus net liabilities assumed by the other party, reduced (but not below zero) by exchange expenses | Cash and mortgage boot, including any sale proceeds that paid your exchange expenses, minus those expenses; describe any other property received on line 15a |
16 | FMV of like-kind property you received | Value of your replacement property, usually its purchase price |
17 | Add lines 15 and 16 | Everything you received |
18 | Adjusted basis of like-kind property you gave up, net amounts paid to the other party, plus exchange expenses not used on line 15 | Original cost minus accumulated depreciation, plus any net increase in debt or cash you added, plus any exchange expenses left over after line 15 |
19 | Realized gain or (loss) | Line 17 minus line 18 |
20 | Smaller of line 15 or line 19, but not less than zero | The part of the realized gain that boot makes taxable |
21 | Ordinary income under recapture rules | Section 1245 recapture (and any section 1250 additional depreciation); also entered on Form 4797, line 16 |
22 | Line 20 minus line 21 (not less than zero) | The rest of the taxable gain; if more than zero, it also goes on Schedule D or Form 4797 |
23 | Recognized gain | Line 21 plus line 22 |
24 | Deferred gain or (loss) | Line 19 minus line 23 |
25 | Basis of like-kind property received | Lines 18 plus 23, minus line 15; split across lines 25a-25c (section 1250, section 1245-type, and intangible property) in proportion to FMV |
Worked example
Facts:
Item | Value |
|---|---|
Relinquished property | 123 Main St, Denver, CO - residential rental |
Date acquired | January 15, 2015 |
Original cost | $350,000 ($280,000 building, $70,000 land) |
Depreciation claimed (10 years) | $101,818 (residential: $280,000 / 27.5 years x 10 years) |
Adjusted basis | $248,182 ($350,000 - $101,818) |
Sale price | $700,000 |
Selling costs (commission + closing) | $44,000 |
Sale price minus selling costs | $656,000 |
Old mortgage payoff | $150,000 |
Net cash to QI | $506,000 |
QI fee (paid from proceeds) | $1,000 |
Total exchange expenses | $45,000 ($44,000 selling costs + $1,000 QI fee) |
Replacement property | 456 Oak Ave, Denver, CO - residential rental |
Replacement purchase price | $725,000 |
New mortgage | $220,000 |
Cash from QI at replacement closing | $505,000 |
Replacement closing date | November 10, 2025 (within 180 days) |
Filling out Part I
Line | Entry |
|---|---|
1 (relinquished description) | 123 Main Street, Denver, CO 80202 - residential rental house |
2 (replacement description) | 456 Oak Avenue, Denver, CO 80202, residential rental house |
3 (date acquired) | 01/15/2015 |
4 (date transferred) | 06/01/2025 |
5 (date identified) | 07/01/2025 |
6 (date received) | 11/10/2025 |
7 (related party?) | No |
Identification rule (not on the form) | 3-Property Rule; keep the letter with your records |
Filling out Part III
The numbers below rest on these assumptions:
- The $44,000 of selling costs and the $1,000 QI fee are all exchange expenses, $45,000 in total, and all of it was paid out of the sale proceeds.
- The sale proceeds that paid those costs count as cash you received, and the $45,000 of exchange expenses then cancels that cash on line 15. Nothing is left over for line 18, so the costs are counted once.
- Paying off the old $150,000 mortgage at the sale counts as debt the other side took over, and the new $220,000 loan counts as debt you took on. You took on $70,000 more debt than you shed, so there is no mortgage boot, and that $70,000 is a net amount paid on line 18.
- The rest of the proceeds ($505,000) all went into the replacement, so no cash came back to you.
- Depreciation is simplified to 10 full years. A real schedule uses the mid-month convention for the months of purchase and sale, which changes the figure.
- Both properties are residential rentals depreciated straight-line, with no section 1245 components. You gave up no non-like-kind property, so lines 12-14 stay blank.
Line | Calculation | Amount |
|---|---|---|
12‑14 - Other property given up | None | Blank |
15 - Cash, other property and net debt relief, less exchange expenses | $45,000 of proceeds spent on exchange expenses + $0 net debt relief ($150,000 old loan minus $220,000 new loan is negative), minus $45,000 exchange expenses | $0 |
16 - FMV of like-kind property received | Replacement purchase price | $725,000 |
17 - Line 15 plus line 16 | $0 + $725,000 | $725,000 |
18 - Adjusted basis given up, net amount paid, leftover exchange expenses | $248,182 adjusted basis ($350,000 - $101,818) + $70,000 net new debt ($220,000 - $150,000) + $0 expenses left after line 15 | $318,182 |
19 - Realized gain | $725,000 - $318,182 | $406,818 |
20 - Smaller of line 15 or line 19 | Smaller of $0 and $406,818 | $0 |
21 - Ordinary income under recapture rules | Straight-line residential rental, no section 1245 property, and line 20 is $0 | $0 |
22 - Line 20 minus line 21 | $0 - $0 | $0 |
23 - Recognized gain | $0 + $0 | $0 |
24 - Deferred gain | $406,818 - $0 | $406,818 |
25 - Basis of like-kind property received | $318,182 + $0 - $0 | $318,182 |
25a - Basis of section 1250 property received | The building's share of line 25; land is not section 1250 property, so your CPA sets the split from the appraisal | Building share of $318,182 |
Check: the line 19 gain equals the $700,000 sale price minus $45,000 of exchange expenses minus the $248,182 adjusted basis, and the line 25 basis equals the $725,000 price minus the $406,818 deferred gain.
Result: $0 recognized gain. The full $406,818 gain is deferred, and the replacement property starts with a basis of $318,182 for future depreciation.
Depreciation recapture note: Line 21 is $0. The $101,818 in prior depreciation isn't separately taxed here because no gain was recognized. Sell the replacement property later without exchanging again, and the recapture comes due then. Your CPA should track the carried-over depreciation for future reporting.
Common mistakes
1. Wrong adjusted basis. Reporting the original purchase price without subtracting depreciation. Buy for $350,000, claim $101,818 in depreciation, and your basis is $248,182, not $350,000. Your CPA can pull the depreciation schedule.
2. Skipping the form when no gain is recognized. Form 8824 is required for every 1031 exchange, zero recognized gain included. It reports the exchange itself, not just the tax owed, and a missing form can prompt IRS questions years later.
3. Incorrect boot reporting. Under-reporting cash or mortgage boot. Receive $25,000 in boot and it belongs on line 15. The IRS cross-references your 1099-S and settlement statements.
4. Vague property descriptions. Use specific street addresses and legal descriptions, not generic labels like "commercial real estate in Denver."
5. Wrong dates. Lines 3, 4 and 6 must match the closing statements for the original purchase, the sale and the replacement purchase, and line 5 must match the date your written identification was delivered.
6. Undisclosed missed deadlines. If you blew the 45-day window to identify a replacement or the 180-day window to close, don't file as if the exchange succeeded. Work with your CPA on the correct treatment.
Documentation to gather before tax time
Hand these to your CPA before they prepare the form.
Relinquished property:
- Original purchase closing statement (date and cost)
- Depreciation schedule showing total depreciation claimed
- Sale closing statement (sale price, commissions, costs, net proceeds)
- Mortgage payoff statement
Replacement property:
- Purchase agreement and closing statement (acquisition date and cost)
- New mortgage documents (loan amount)
- QI final accounting (funds received, disbursed, balance)
Exchange timeline:
- Exchange agreement from QI
- Identification letter with proof of timely delivery
- QI confirmation of all deadlines
QI contact details (for your records; the form does not ask for them):
- Legal entity name and EIN
- Mailing address
Then review the completed draft for accurate property descriptions, dates, and gain calculations before you sign.
Calculate your specific numbers to confirm gain and boot before filing. If anything about your basis or recapture is uncertain, consult your CPA or an experienced 1031 advisor.
Considering a DST for this exchange?
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See active DST offerings →Frequently asked questions
Do I have to file Form 8824 if I deferred all my gain (zero boot)?
Yes. Even with zero recognized gain and zero tax owed, you still file Form 8824 to report the exchange. The IRS wants a record of every exchange, not only the ones that produce a tax bill.
What is depreciation recapture and why does it matter for Form 8824?
Depreciation recapture is the depreciation you claimed on the relinquished property over the years. When you sell, that amount is recaptured and taxed at up to 25% (unrecaptured Section 1250 gain), which can be higher than the long-term capital gains rate, and it feeds into the gain calculation on the form.
If I did an exchange years ago, do I need to file Form 8824 now?
No. Form 8824 is filed for the year you transferred the relinquished property. Sell in 2024 and it goes with your 2024 return, filed in early 2025. Once filed, there's nothing to refile, with one exception: after an exchange with a related party, you file Form 8824 again for each of the next two years to confirm neither of you has disposed of the property.
What if my qualified intermediary's information is wrong on the form?
There's nothing to correct on the form itself: Form 8824 has no field for the QI's name or EIN. It reports the properties, the dates and the gain math. Keep the QI's exchange agreement and final accounting with your records, because they prove the dates you enter on lines 5 and 6.
How does Section 1231 gain factor into the form?
Section 1231 gain and ordinary income section 1245 recapture are reported separately. Section 1245 recapture goes on line 21 and on Form 4797. Gain from depreciation on the building itself (unrecaptured Section 1250 gain) is taxed at up to 25%. Ask your CPA how to split these and report each on the right form.