IRS Form 8824: Reporting a 1031 Exchange on Your Tax Return

What Form 8824 Does — and What It Does Not Do

Form 8824 is a reporting form, not a payment form. Filing it does not trigger a tax payment by itself. What it does is establish the official record of your exchange with the IRS: the properties involved, the dates, the gain deferred, and the basis carried into the replacement property. That carryover basis drives the depreciation schedule on the replacement property and the gain recognition in every future sale or exchange.¹

Form 8824 does not calculate your state tax liability. States that conform to §1031 — including all 50 states as of 2022 — generally require a parallel state-level filing. Five states (California, Oregon, Montana, Massachusetts, and Idaho) have clawback provisions requiring annual tracking forms even after you move; those filings are separate from Form 8824. See the state tax rules guide for state-by-state details.

Form 8824 also does not report the sale of the relinquished property. That sale goes on Form 4797 (business or investment property) or Schedule D, but only to the extent gain is recognized — i.e., only if you received boot. The portion of recognized gain that is §1250 unrecaptured depreciation flows directly to Form 4797, Part III. Your CPA handles the mechanical routing between forms; understanding what Form 8824 produces helps you verify the numbers.

The Three Parts of Form 8824

Part I — Exchange Information

Part I identifies the properties, records the four key dates, and asks whether the exchange involved a related party. You will fill in:

• Description and address of the like-kind property given up (the relinquished property)
• Description and address of the like-kind property received (the replacement property)
• Date the relinquished property was originally acquired
• Date you transferred the relinquished property to the buyer (closes the sale)
• Date you identified the replacement property in writing (the 45-day clock)
• Date you received the replacement property (closes the purchase)
• Whether the exchange was with a related party (yes/no checkbox)

If you answer "yes" to the related party question, Part II is required. For most straightforward exchanges involving unrelated buyers and sellers, Part II can be skipped.

Part II — Related Party Exchange Information

Part II applies when you exchanged with a related party — a spouse, child, parent, sibling, or an entity in which you or the related person owns more than 50% under IRC §267(b) or §707(b). The two-year holding rule under IRC §1031(f) requires both parties to hold their respective properties for at least two years after the exchange. If either party sells within two years (except for death, involuntary conversion, or a no-tax-avoidance purpose), the gain deferred on the exchange becomes taxable in the year of that disqualifying disposition.

Part II collects the related party's name, relationship, taxpayer identification number, and documents whether the two-year period has elapsed or an exception applies. The IRS uses this information to monitor subsequent dispositions. See the related party rules guide for the full mechanics.

Part III — The Math

Part III is where the exchange's economics are quantified. It produces five numbers, in sequence:

1. FMV of the like-kind property received — the purchase price of the replacement property (or appraised FMV for DST interests)
2. Boot received — cash kept from the QI plus net mortgage relief (old debt minus new debt, if positive)
3. Amount realized — FMV of replacement property received plus all boot received
4. Adjusted basis of property given up — original purchase price plus improvements minus accumulated depreciation, plus qualified exchange expenses (QI fees, attorney fees attributable to the exchange)
5. Realized gain or loss — amount realized minus adjusted basis
6. Recognized gain — the lesser of (realized gain) and (total boot received), but never less than zero
7. Deferred gain — realized gain minus recognized gain
8. Basis of like-kind property received — FMV of replacement property minus deferred gain

The recognized gain reported on Form 8824 then flows to the appropriate schedules: the §1250 recapture component (taxed at a maximum 25%) goes to Form 4797; any remaining long-term capital gain goes to Schedule D.

The Key Concepts: Realized Gain, Boot, and Deferred Gain

Why Mortgage Relief Is Boot

Many investors miss mortgage boot. If your relinquished property had a $600,000 mortgage and your replacement property carries only a $200,000 mortgage, the IRS treats the $400,000 difference as though you received $400,000 in cash — even though you never touched the money. Net mortgage relief = old mortgage minus new mortgage, when that difference is positive. Taking on more debt on the replacement property (new debt > old debt) offsets cash boot dollar-for-dollar, but does not create negative boot. See the boot guide and boot calculator for detailed scenarios.

Worked Example A: Full Exchange — No Boot

An investor sells a rental duplex on June 1, 2025 and closes on the replacement property within 180 days.

Debt replacement check: New debt $500K > old debt $300K ✓ — no mortgage boot.
Cash check: All $900K QI proceeds reinvested ✓ — no cash boot.

Tax owed for 2025: $0 federal on the exchange. The investor carries $850,000 of deferred gain into the replacement property. Of that, $130,000 represents accumulated §1250 depreciation that would be taxed at 25% in a future taxable sale, and $720,000 is long-term capital gain taxable at 20% plus the 3.8% NIIT if MAGI exceeds the applicable threshold.

The replacement property's depreciation schedule starts from the $550,000 carryover basis, not its $1,400,000 purchase price. At a 27.5-year straight-line rate, annual depreciation is approximately $20,000 — meaningfully less than the $50,909 annual depreciation on a $1,400,000 basis the investor might have expected. This is the cost of deferral that the exchange math alone does not reveal.

Worked Example B: Partial Exchange — Boot Recognized

Same investor, but the replacement property is a smaller NNN commercial building at $1,000,000 with no mortgage. The investor keeps $200,000 in cash from the QI proceeds.

Mortgage relief check: Old mortgage $300K, new mortgage $0 → net mortgage relief = $300,000 (boot!)
Cash check: $200,000 kept from QI (boot).
Total boot = $200,000 cash + $300,000 mortgage relief = $500,000

Federal tax on the $500,000 recognized gain:

The §1250 recapture layer ($130,000) flows from Form 8824 to Form 4797. The $370,000 LTCG flows to Schedule D. Both are combined on the 1040. The $19,000 NIIT is calculated on Form 8960.²

The replacement property's carryover basis is $650,000 — higher than the $350,000 basis of the relinquished property because the investor paid tax on $500,000 of gain and no longer carries that deferred liability into the new property.

How §1250 Recapture Flows to Form 4797

When boot is recognized, the gain does not all receive long-term capital gain treatment. The IRS taxes recognized gain in layers, starting with the least favorable:

1. §1245 recapture — ordinary income rates (up to 37%) on accelerated depreciation taken on personal property. Uncommon on pure real estate acquired after 1986.
2. §1250 unrecaptured gain — maximum 25% rate on all straight-line depreciation taken on real property. Accumulated over the entire holding period of every prior exchange in the chain, not just the current property.
3. Long-term capital gain — 20% for taxpayers in the highest bracket on remaining gain above the basis and depreciation layers.
4. Net Investment Income Tax — 3.8% on recognized gain when MAGI exceeds $200,000 (single) or $250,000 (MFJ).³

The §1250 recapture component calculated on Form 8824 (Part III) is carried to Form 4797, Part III, where it is computed as ordinary income. Your CPA may produce the 4797 before the 8824 in the return assembly process, but the 8824 drives the recognized amounts.

One critical trap: in a full exchange with no boot, §1250 recapture is fully deferred — it does not appear on Form 4797 at all. It stays locked in the carryover basis and accrues across every future exchange. Investors with long exchange histories may be carrying decades of §1250 exposure that has never appeared on a return. The depreciation recapture guide explains the full mechanics.

Multiple Exchanges in One Tax Year

If you complete more than one 1031 exchange in a single tax year, you must file a separate Form 8824 for each exchange. Each form documents one relinquished property and its corresponding replacement property (or properties, in a one-to-many exchange). The IRS instructions confirm this requirement — there is no combined reporting option.¹

In a one-to-many exchange (sell one property, acquire two), a single Form 8824 covers the entire exchange, with the replacement properties itemized in Part I and the combined FMV used in Part III calculations.

In a many-to-one exchange (sell two properties, buy one), file one Form 8824 per relinquished property, allocating the replacement property's FMV and basis across the two forms. The IRS instructions for multi-asset exchanges provide the allocation methodology, or see the multiple properties guide for the mechanics.

DST Exchanges and Form 8824

A Delaware Statutory Trust interest qualifies as like-kind real property for §1031 purposes under Revenue Ruling 2004-86. DST exchanges are reported on Form 8824 exactly like direct property exchanges: Part I describes the relinquished property and the DST interest received, with the DST's FMV (typically the offering price) entered in Part III.⁴

One DST nuance: the replacement property described in Part I should reflect the individual investor's ownership percentage in the trust, not the trust's total portfolio value. DST sponsors provide the applicable FMV figures in the subscription documents.

UPREIT (§721) exchanges are handled differently. A §721 contribution to an operating partnership in exchange for OP units is not a like-kind exchange and is not reported on Form 8824. It is a non-recognition event under §721, reported separately. See the UPREIT vs DST guide for the distinction.

When and How to File

Form 8824 is filed as part of the federal income tax return for the year the relinquished property was transferred — not the year the replacement property was acquired (these can differ when the sale and purchase straddle December 31). If the relinquished property closed on November 15, 2025 and the replacement property closed on February 10, 2026, Form 8824 is filed with the 2025 return.¹

The filing deadline follows the return due date: April 15 (individuals), or October 15 with a timely Form 4868 extension. Extensions give additional time to file but do not extend time to pay — if boot was recognized, estimated tax payments may be required during the year to avoid underpayment penalties.

If the return was already filed and Form 8824 was inadvertently omitted, file an amended return (Form 1040-X) to attach it. Late-filed Form 8824 does not automatically trigger an audit, but the missing form can create a discrepancy between the QI's 1099-S and the return that prompts IRS correspondence.

Record-Keeping Requirements

Form 8824 creates a chain of basis documentation that must be preserved for every future exchange or sale of replacement property. The IRS can challenge the carryover basis claimed on a replacement property if the prior exchange records are missing. Best practice is to retain indefinitely:

• Form 8824 for each exchange in the chain
• Settlement statements (HUD-1 or ALTA) for every relinquished and replacement property
• QI exchange agreement, escrow instructions, and closing statements
• Depreciation schedules for each property in the chain
• Identification notice and written exchange agreement

For long exchange chains — investors who have rolled gains across multiple properties over decades — the documentation burden is substantial. A financial advisor who tracks the chain value alongside tax records provides continuity that a single CPA engagement at closing cannot.

Common Form 8824 Mistakes

What a Financial Advisor Does That Form 8824 Does Not

Form 8824 is a historical record. It documents what happened. It does not tell you whether the exchange was the right financial decision, what the deferred gain means for your retirement income plan, or how the carryover basis affects your estate.

Specifically, a fee-only financial advisor working alongside your CPA can:

• Model the full after-tax comparison before the 45-day clock forces a decision — not after Form 8824 is filed
• Translate the deferred gain number into a long-term liability projection: what it will cost in taxes if you sell at retirement, and what it costs in depreciation-basis reduction over the replacement property's hold period
• Coordinate the timing and size of intentional boot to offset suspended passive losses (recognized gain = passive income, which absorbs suspended losses without additional tax — see the PAL guide)
• Model the step-up-at-death scenario: if you plan to hold until death, every dollar on Form 8824's deferred-gain line is likely to disappear permanently under IRC §1014 — changing whether the exchange made financial sense at all
• Evaluate DST or UPREIT structures as exit paths from a long exchange chain before the deferred gain becomes unmanageable in size

The exchange mechanics on Form 8824 are fixed once the properties close. The planning decisions that determine whether the Form 8824 line items work in your favor have to happen before the 45-day clock starts.

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1031ExchangeAdvisorMatch is a referral service, not a licensed advisory firm. We may receive compensation from professionals in our network. Content is for informational purposes only and does not constitute financial, tax, legal, real estate, or investment advice. Section 1031 rules are complex and should be reviewed with qualified tax and legal professionals.