Form 8824 is required whenever you complete a 1031 exchange, even if you recognize no gain. The common mistakes are basis miscalculations, wrong dates, a missing related-party disclosure, and boot errors. Large exchanges that report zero gain tend to draw IRS scrutiny, because the agency wants to confirm the exchange actually happened and qualifies.
A 1031 exchange lets you sell one investment property, buy a like-kind one, and defer the capital gains tax on the sale. Form 8824 is the paperwork that makes the deferral official, and a mistake on it can quietly undo the whole thing.
Form 8824, "Like-Kind Exchanges," goes in with your federal return for the year the exchange closed. You file it even when you recognize no gain, because full deferral still has to be documented. Errors can trigger an audit, throw off your tax, or cost you the deferral itself.
Mistake 1: The basis starts from the wrong number
The slip usually starts with the replacement property's purchase price. Investors use that figure as their new basis, when the basis actually carries over from the property they gave up. A close cousin of the error: forgetting to subtract the depreciation already claimed on the relinquished property from its cost basis.
Basis matters because it sets your depreciation schedule and your eventual capital gains bill. Set it too high and you underpay now while leaving a problem to surface at a future sale or audit. Set it too low and you overpay.
The replacement property's basis follows one formula:
Adjusted basis of relinquished property + boot paid - boot received + gain recognized
Boot is the non-like-kind value that changes hands in an exchange, such as cash or relief from a mortgage. A CPA who has handled 1031 exchanges will reconcile that figure against your depreciation schedule and closing documents.
Mistake 2: Dates that don't match the closing
Day one of the exchange is the day title transfers, the date on the closing statement, not the day you signed the agreement. It is easy to reach for the listing date, the offer acceptance date, or the contract date instead.
The IRS checks the dates on Form 8824 against your closing documents, and a mismatch invites questions. In the worst case it supports a finding that you blew a deadline. Pull every date straight from the closing statements for both the relinquished and replacement properties, and confirm them with your qualified intermediary, the QI who holds your proceeds between the two closings.
Mistake 3: Skipping the form because no tax is due
When the entire gain is deferred, it is tempting to assume there is nothing to file. There is. Form 8824 is required whether or not you recognize gain: it sets the basis for the replacement property and puts the exchange on the IRS record. Skip it and you risk penalties, and if the IRS finds the omission, it can treat the transaction as a taxable sale. A CPA should include it as a matter of course in any year you complete an exchange.
Mistake 4: Leaving out the related-party disclosure
Part II of Form 8824 asks whether the exchange involved a related party. Some investors don't realize it did; others skip Part II because it looks optional. It isn't. The disclosure covers relationships defined in IRC 267(b): a spouse, sibling, parent, or child, or an entity you control more than 50%. Omitting it when it applies reads as concealment, and if the IRS turns up the relationship in other records, you have made an audit problem for yourself. Check the related-party definition before you file, and complete Part II if any party qualifies.
Mistake 5: Miscounting boot
Cash boot is obvious. The rest is not. Mortgage boot, meaning debt relief without equivalent new debt on the replacement property, slips past people, and so does hidden boot from prorations, personal property received at closing, or non-qualifying closing costs.
The math runs: cash received + non-like-kind property received + net debt relief - boot paid. Understate boot and you understate your recognized gain, which means you underpay; overstate it and you overpay. Reconcile the number against both closing statements, and have your CPA look specifically for hidden sources.
Mistake 6: Losing track across multiple properties
When an exchange involves more than one relinquished or replacement property, each one has to be tracked on its own, with its own value, basis allocation, and dates. The common slip is mixing up which relinquished property maps to which replacement. Get the allocation wrong and every replacement property inherits a wrong basis, which throws off depreciation and future gain. List each property separately on Form 8824 (or on multiple copies of the form), reconcile the values with the closing statements, and have your CPA organize the data before filing.
What draws IRS attention
A handful of patterns tend to earn a closer look:
- Large exchanges that report zero recognized gain
- Form 8824 figures that don't match Schedule D or Schedule E
- A missing Form 8824
- An omitted related-party disclosure
- Short holding periods on the replacement property
- Dates that don't match the closing documents
- Large boot with thin documentation
A pre-filing checklist
Before your CPA files, confirm:
The mistakes that cost the most
Form 8824 is manageable once the inputs are right. The costliest errors fall into two buckets: basis mistakes, which compound quietly over years of depreciation and resurface at the next sale, and omissions, which are the ones that draw an audit. A CPA experienced in 1031 exchanges is the usual safeguard, and the fee tends to be small next to a basis error discovered years later or an audit set off by a form that was never filed.
Calculate your potential tax savings to see what is at stake, and make sure the form protects the deferral you worked for.
Accurate Form 8824 comes down to careful inputs and complete documentation. Investors typically rely on a CPA experienced in 1031 exchanges to reduce errors and audit risk.
Frequently asked questions
When do I file Form 8824?
You file Form 8824 with your personal return (Form 1040) for the tax year the exchange closed, meaning the closing date of the replacement property. Close on the replacement in December 2025, and the form goes on your 2025 return, filed in 2026.
What if I don't recognize any gain in the exchange?
You still file. Form 8824 is required even when no gain is recognized, and skipping it can lead to penalties and the loss of the deferral benefit.
How do I calculate the basis of the replacement property?
Start from the adjusted basis of the relinquished property, add any boot you paid, subtract any boot you received, and add any gain you recognized. Reaching for the replacement property's purchase price instead is the single most common basis error.
What's the difference between the "closing date" and other relevant dates?
The clock starts on the closing date of the relinquished property, the day title transfers, not the listing date or offer acceptance date. That same date is day one for both the 45-day identification period and the 180-day exchange period.
What audit red flags relate to Form 8824?
Large exchanges with no recognized gain, figures that don't match Schedule D or Schedule E, a missing Form 8824, an omitted related-party disclosure, and short holding periods on the replacement property can all invite an audit.