Form 8824
Form 8824 is required for all 1031 exchanges and must be filed with your tax return in the year that the preliminary relinquished property was sold and the 180-day exchange period began. It can be complicated to complete, especially when dealing with a related party exchange.
IRS Form 8824 is the income tax report used to file for like-kind exchanges of real property. It is filed along with a federal return and includes information on the 1031 exchange process. It also includes instructions on how to prepare the report. In a like-kind exchange, taxpayers are able to defer capital gains taxes on the sale of business or investment property if they purchase replacement property of the same type. In order to qualify as a like-kind exchange, the replacement property must be “of the same kind and character,” not just similar in nature. The replacement must also be used for a business or funding enterprise, but it can be either improved or unimproved. In addition, there is a 45-day time limit for identifying replacement property and a 180-day time limit for acquiring the replacement property.
If the exchange was done with a related party, this should be identified as well. The form should be filed with the return for the year the relinquished property was sold and the exchange process began. It should be noted that, depending on how long the final replacement property was held before it was transferred, filing might be required two years after the original relinquished property was sold. This is particularly true for exchanges that involve real estate, but it could extend to other types of assets as well.
Who Must File Form 8824?
Any taxpayer who completes a like-kind exchange that isn’t a Section 1031 exchange must file IRS Form 8824 with their tax return. This form reports the amount of gain deferred by the exchange.
How to Fill out Form 8824?
Form 8824 must be filed with the IRS when the replacement property is acquired and the relinquished property is sold at the end of the year. A tax return extension may be required if the exchange is completed in the next year.
- In Part I of the form, taxpayers must report the relinquished and replacement property and the dates of each disposition. The taxpayer must also indicate whether the exchange involved related parties.
- The taxpayer must complete Part II of the form if the exchange did involve a related party
- Part III of the form reports the fair market value of the replacement property received in the exchange.
- Part IV is only used by certain members of the executive and judicial branches of the Federal government, so it won’t be needed by most taxpayers.
