One of the most important documents associated with completing a 1031 exchange is IRS Form 8824 for like-kind exchanges.
This two-page, four-part form is used to calculate the amount of capital gains that are to be deferred in a 1031 exchange, as well as the basis of the replacement property. The form is submitted along with your Form 1040 when you complete your annual tax return. Form 8824 is required for exchangors because the Internal Revenue Service was alerted to your exchange when your qualified intermediary filed a 1099-S.
Keep reading to learn if you can amend this form after submitting it with your tax return.
Form 8824 does much more than establish the amount of capital gains you are deferring in the exchange process. It also includes descriptions of relinquished and replacement assets and determines when relinquished assets were sold and replacement properties identified and received. This form also determines if the exchange took place between related parties.
Completion of Form 8824 can be extremely complicated, especially when multiple assets are involved in sale or purchase transactions, and typically requires extensive knowledge of the 1031 exchange process. If you stumble anywhere while filling out Form 8824, it’s time to bring in a certified tax professional. This is especially important because you generally cannot amend this document once it's filed. You also cannot file your tax return without completing Form 8824 or you will end the exchange and generate a capital gains tax liability on the sale of your original investment property.
Like-kind exchanges may carry over from one year to the next – say you close on the sale of a relinquished property in November and close on your replacement asset in March. In this instance, your exchange can be wholly reported on the tax year in which the relinquished asset was sold. If you cannot complete the exchange prior to the filing deadline in April, you must request an extension by completing and filing Form 4868: Application for Automatic Extension of Time To File U.S. Individual Income Tax Return.
Form 8824 provides the IRS with important information about your 1031 exchange and must be submitted with your federal tax return in the year you sold your original investment property. The IRS provides line-by-line instructions for completing Form 8824, but investors should consider passing this duty off to an accountant well-versed in 1031 tax laws and regulations since the form can’t be amended once it’s submitted.