IRS Instruction 8824 – IRS Forms, Instructions, Pubs 2026 – Like-kind exchanges offer a powerful tax strategy for real estate investors and business owners, allowing them to defer capital gains taxes when swapping similar properties. Under Section 1031 of the Internal Revenue Code, these transactions can help preserve capital for reinvestment. IRS Form 8824 is the key document for reporting such exchanges, ensuring compliance while calculating deferred gains and the basis of new property. This article breaks down the instructions for Form 8824, updated for the 2025 tax year, to help you navigate the process effectively.
What Is a Like-Kind Exchange?
A like-kind exchange, often called a 1031 exchange, involves trading business or investment real property for another of similar nature or character. The key benefit is deferring recognition of gain or loss, meaning you don’t pay taxes immediately on any profit from the exchange. Properties qualify as like-kind if they share the same class, such as exchanging an apartment building for farmland—both are real property, regardless of grade or quality differences.
Important rules include:
- Real Property Only: Since 2018, like-kind exchanges are limited to real property held for trade, business, or investment (not primarily for sale). Personal property like vehicles or artwork no longer qualifies.
- Deferred Exchanges: You have 45 days to identify replacement property in writing and 180 days (or your tax return due date, if earlier) to complete the acquisition.
- Boot: Any cash, non-like-kind property, or net debt relief received (“boot”) triggers taxable gain.
Real property definitions draw from state law, federal regulations, and facts like permanence of affixation. For example, a permanently installed machine in a building might count as real property.
Who Needs to File Form 8824?
You must file Form 8824 if you completed a like-kind exchange of real property in the tax year. This includes deferred exchanges using a qualified intermediary (QI) or exchange accommodation titleholder (EAT). Also file for Section 1043 conflict-of-interest sales by certain federal employees.
File with your tax return (e.g., Form 1040) for the year of the exchange. If involving related parties, report in the next two years as well. Multiple exchanges can be aggregated on one form with an attached statement.
Exceptions: Don’t file if the exchange doesn’t qualify under Section 1031, or if it’s a personal residence (use Section 121 exclusion instead).
Key Changes and Updates for 2025
The 2025 instructions, revised December 2, 2025, include several updates:
- Section 121 Exclusion Integration: New write-in space on line 19 for e-filed forms to note “Section 121 exclusion” and the amount when exchanging property used as a home.
- Qualified Farmland: Under new Section 1062 (effective after July 4, 2025), gains from qualified farmland exchanges to qualified farmers may defer net income tax—report on Form 1062.
- Opportunity Zones: Revised rules for Qualified Opportunity Funds (QOFs) under Sections 1400Z-1 and 1400Z-2; file Form 8997 if applicable.
- E-Filing Enhancements: No separate attachments needed for lines 12a, 15a, and 25a-25c; these are now integrated into the form.
These changes reflect ongoing refinements to real property rules from the Tax Cuts and Jobs Act and recent legislation.
Step-by-Step Guide to Filling Out Form 8824
Form 8824 has four parts. Use it to calculate realized gain, recognized gain, and the basis of received property. Only describe real property on lines 1 and 2.
Part I: Information on the Like-Kind Exchange
- Lines 1-2: Describe the property given up and received (include addresses and country if foreign).
- Lines 3-6: Enter acquisition and transfer dates, identification date (45-day rule), and receipt date (180-day rule).
- Line 7: Check if related-party exchange; if yes, complete Part II.
Part II: Related Party Exchange Information
Complete if the exchange involves related parties (e.g., family or controlled entities). Report dispositions within two years and check exceptions like death or involuntary conversion.
Part III: Realized Gain or (Loss), Recognized Gain, and Basis of Like-Kind Property Received
This is the core calculation section:
- Lines 12-14: For non-like-kind property given up—enter fair market value (FMV), adjusted basis, and gain/loss (report as a sale).
- Line 15: Calculate cash or boot received (net of expenses).
- Lines 16-19: FMV of like-kind received, total realized amount, adjusted basis of property given up, and realized gain.
- Line 20: Recognized gain (lesser of boot or realized gain; adjust for Section 121 exclusion).
- Line 21: Ordinary income recapture (e.g., depreciation under Sections 1245/1250).
- Lines 22-24: Nonrecapture gain, total recognized gain, and deferred gain.
- Line 25: Basis of like-kind property received (adjust for boot, gains, and exclusions).
- Lines 25a-25c: Allocate basis for specific property types (e.g., Section 1250).
For multi-asset exchanges, attach a statement.
Part IV: Deferral of Gain From Section 1043 Conflict-of-Interest Sales
Used by eligible federal employees. Calculate sales proceeds, recognized gain, and deferred amounts.
Examples of Like-Kind Exchanges
Consider an investor exchanging an apartment (FMV $220,000, basis $100,000, mortgage $80,000) for another (FMV $250,000, basis $175,000, mortgage $150,000) plus $40,000 cash. The boot ($40,000) triggers recognized gain, while the rest defers. Recapture applies if depreciation was claimed.
Another scenario: Exchanging qualified farmland under new rules may allow full deferral if electing Section 1062.
Reporting Requirements and Where to Report Gains
Report recognized gains on Schedule D (capital) or Form 4797 (business). Use Form 6252 for installment sales and Form 8997 for QOF investments. Keep records for audits, as per the Paperwork Reduction Act.
Common Mistakes to Avoid
- Missing deadlines for identification or completion.
- Misclassifying property as like-kind.
- Forgetting related-party reporting in subsequent years.
- Incorrectly calculating boot or basis adjustments.
Consult a tax professional for complex exchanges.
Mastering Form 8824 can unlock significant tax savings through like-kind exchanges. Stay updated with IRS resources for any future developments.