IRS Form 8824 – Like-Kind Exchanges

IRS Form 8824 – In the world of real estate investing and business asset management, deferring capital gains taxes can significantly impact your financial strategy. Enter IRS Form 8824, the key document for reporting like-kind exchanges under Section 1031 of the Internal Revenue Code. This form allows taxpayers to swap similar properties without immediate tax consequences, provided strict rules are followed. Whether you’re a real estate investor, business owner, or tax professional, understanding how to file Form 8824 is essential for compliance and tax savings.

In this guide, we’ll break down everything you need to know about IRS Form 8824, including its purpose, eligibility requirements, step-by-step filing instructions, and recent updates. We’ll also provide tips to avoid common pitfalls. For the official form, you can download the PDF directly from the IRS website: https://www.irs.gov/pub/irs-pdf/f8824.pdf.

What is a Like-Kind Exchange?

A like-kind exchange, often called a 1031 exchange, lets you defer recognition of capital gains or losses when exchanging business or investment property for another of “like kind.” This means you can roll over your investment into a new asset without paying taxes right away, allowing your capital to grow tax-deferred.

Key points:

  • Limited to Real Property: Since the Tax Cuts and Jobs Act of 2017, like-kind exchanges are restricted to real estate held for business or investment purposes (not personal use or inventory). Personal property like vehicles or equipment no longer qualifies.
  • Deferral, Not Elimination: Taxes are postponed until you sell the replacement property without another exchange.
  • Benefits: Ideal for real estate investors upgrading properties, such as trading a rental apartment building for commercial land.

Examples include exchanging farmland for an office building or an investment condo for raw land. However, the properties must be similar in nature or character, even if they differ in quality or grade.

Who Needs to File IRS Form 8824?

You must file Form 8824 if you completed a like-kind exchange of real property during the tax year. This includes:

  • Direct swaps or deferred exchanges using a qualified intermediary (QI).
  • Multi-asset exchanges involving cash or non-like-kind property (known as “boot”).
  • Related party exchanges, which may trigger reporting for up to two years after the exchange if dispositions occur.

Additionally, certain federal government employees or judicial officers use Part IV to defer gains from conflict-of-interest sales under Section 1043.

File the form with your tax return (e.g., Form 1040, 1120) for the year of the exchange. If it’s a related party deal and no disposition happens, you may need to file for the next two years. Electronic filers should ensure attachments are included.

Eligibility and Requirements for Like-Kind Exchanges

To qualify for tax deferral:

  • Property Use: Both relinquished (given up) and replacement properties must be held for productive use in a trade/business or investment.
  • Timelines:
    • Identify replacement property in writing within 45 days of transferring the relinquished property.
    • Receive the replacement within 180 days (or by your tax return due date, including extensions).
  • Qualified Intermediary: For deferred exchanges, use a QI to hold proceeds and avoid constructive receipt.
  • No Tax Avoidance: Exchanges with related parties (e.g., family, controlled entities) must not primarily aim to avoid taxes.
  • Incidental Personal Property: Ignored if it doesn’t exceed 15% of the real property’s fair market value (FMV).

If you receive boot (cash or dissimilar property), you’ll recognize gain up to the boot’s value. Losses are not recognized in like-kind exchanges.

For properties used partly as a home, you may qualify for the Section 121 exclusion (up to $250,000/$500,000 for single/married filers) on the personal portion.

Step-by-Step Guide: How to Fill Out IRS Form 8824

Form 8824 has four parts. Use the latest version for 2025 (applicable for 2026 filings). Attach it to your tax return. For multi-asset exchanges, include a statement with details.

Part I: Information on the Like-Kind Exchange

  • Lines 1-2: Describe the properties given up and received (e.g., address, type; indicate country if outside U.S.).
  • Lines 3-4: Dates acquired and transferred.
  • Line 5: Identification date (within 45 days).
  • Line 6: Receipt date (within 180 days).
  • Line 7: Check if related party involved; if yes, proceed to Part II.
  • Line 8: Related party’s details (name, relationship, ID, address).
  • Lines 9-10: Dispositions within two years? If yes and no exception, report deferred gain.
  • Line 11: Check exceptions (death, involuntary conversion, no tax avoidance).

Part III: Realized Gain or (Loss), Recognized Gain, and Basis of Like-Kind Property Received

This calculates deferral:

  • Lines 12-14: For non-like-kind property given up (FMV, basis, gain/loss).
  • Line 15: Boot received (cash, FMV of other property, net liabilities).
  • Lines 16-19: FMV received, total received, adjusted basis given up, realized gain.
  • Lines 20-24: Recognized gain (including recapture), deferred gain.
  • Line 25: Basis of property received (allocate to specific types on 25a-c).

Report recognized gain on Schedule D or Form 4797.

Part IV: Deferral of Gain From Section 1043 Conflict-of-Interest Sales

For eligible federal personnel:

  • Lines 26-38: Certificate number, property descriptions, dates, sales price, basis, gains, and replacement costs.

If you held a qualified opportunity fund (QOF) investment, attach Form 8997.

Common Mistakes When Filing Form 8824 and Tips to Avoid Them

  • Missing Deadlines: Failing the 45/180-day rules disqualifies the exchange. Tip: Use a QI for safe harbor.
  • Incorrect Property Classification: Ensure only real property qualifies. Tip: Review IRS definitions for “real property.”
  • Overlooking Boot: Report all cash or dissimilar assets. Tip: Calculate FMV accurately.
  • Related Party Issues: Disclose fully to avoid penalties. Tip: Document no tax avoidance intent.
  • E-Filing Errors: Attach explanations for lines like 12a, 15a.

Consult a tax advisor for complex exchanges.

Recent Updates to IRS Form 8824 and Like-Kind Exchanges

As of 2026:

  • 2025 Form Changes: Added lines for descriptions (12a, 15a) and basis allocations (25a-c). E-filers note write-in for Section 121 exclusions on line 19.
  • Qualified Farmland: New Section 1062 allows deferral for farmland sales to qualified farmers (effective post-July 4, 2025); use Form 1062.
  • Opportunity Zones: Revisions to Sections 1400Z-1/2 via P.L. 119-21; 10-year hold for exclusion.
  • Reminders: Exchanges limited to real property; incidental personal property rule applies.

Stay updated via IRS.gov for any 2026 changes.

Conclusion: Maximize Tax Deferral with Proper Filing

IRS Form 8824 is your gateway to tax-efficient property exchanges, but accuracy is crucial to avoid audits or disallowed deferrals. By following this guide and using official resources, you can navigate like-kind exchanges confidently. Remember, professional advice is recommended for personalized situations.

For more details, visit the IRS instructions at https://www.irs.gov/instructions/i8824. If you’re planning a 1031 exchange, start early to meet all deadlines.