Reporting Your 1031 Exchange to the IRS

IRS Tax Reporting Form 8824 Made Easier

Use IRS Tax Reporting Form 8824 to report your 1031 exchange to the IRS. It's a good idea to review the form now so you'll have better idea of the types of information you or your accountant will need to fill out the form. Though Form 8824 is probably one of the most confusing reporting forms the IRS has ever provided, we hope this information will make it easier for you to fill out correctly. Many accountants and CPA's know what the lines 19 through 25 should show but are not able to get there by following the instructions. Feel free to contact us for complimentary assistance with the form.

Three Fold Purpose of IRS Form 8824

This form is easier to fill out correctly when you understand it's three purposes.

First, to have the taxpayer report the dates of sale and replacement property closings, together with their identification dates. This will verify that the 45/180 date requirements were satisfied. Enter this information in Part One.

Second, is for the taxpayer to set forth their sale and purchase numbers (sale price, selling expenses, adjusted basis, depreciation taken, cost of replacement property) to show whether there was a full or partial exchange. Enter this information in Part Three.

Any of the following situations indicates a partial exchange and will trigger a tax.

• "Boot."
• Cash that wasn't taken out.
• Failure to acquire sufficient replacement property (caused by falling short of meeting the fair market value (FMV) threshold requirement).
  

Third, is to show the new tax basis of the replacement property. Since the exchange is a deferral of taxes, the gain the taxpayer had in their old property show ups (deferred) in the new property via an equal amount of lesser basis than if the property was purchased outright (without an exchange). Enter this information in Part Four.

The information provided in IRS Form 8824 makes it easy for the IRS to review a taxpayer's prior 8824 Forms to verify that the appropriate amount of taxable gain is calculated and correct taxes paid, if and when the taxpayer ultimately decides to sell and not exchange.

For more information about 1031 exchanges contact us.