Is Form 8824 Required Every Year?

Posted Mar 9, 2023

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A 1031 exchange is a complex process. There are many rules to follow so that the exchange isn’t invalidated. Additionally, specific forms, such as form 8824, must be filed. The frequency and timing of filing for this form can vary depending on the taxpayer’s specific situation. In this article, we’ll look at form 8824 in more detail and discuss its filing requirements.

What Is Form 8824?

IRS Form 8824 is used to report the details of a 1031 exchange, also called a like-kind exchange. Gains on the relinquished property and the cost basis of the replacement property are reported on this form. Gains on the relinquished property are, of course, deferred. Any taxable gain for the year is also reported.

Taxes aren’t eliminated in a like-kind exchange. They are pushed out into the future and only realized when the property is sold. As long as the investor holds the replacement property, gains are not realized. 

An investor can use the like-kind exchange again with the replacement property. This continues to defer gains.

There are four parts to Form 8824:

  • Part I — Information on the Like-Kind Exchange
  • Part II — Related Party Exchange Information
  • Part III — Realized Gain or (Loss), Recognized Gain, and Basis of Like-Kind Property Received
  •  Part IV — Deferral of Gain From Section 1043 Conflict-of-Interest Sales

If the 1031 exchange was started and completed within the same calendar, Form 8824 is filed with your regular tax return. A tax return extension is often needed if the exchange is started in one year and completed in the following year. This requires IRS Form 4868.

Related Parties

Related parties can play a role in the frequency of Form 8824 filings. A related party is the taxpayer’s spouse, child, parent, grandparent, or sibling. A trust or corporation where the taxpayer owns more than 50% is also considered a related party.

If a related party exchange occurred, filing might be required two years after the exchange has been completed. Again, you’ll want to check with your tax professional for any additional filings.

Filing Form 8824

Form 8824 is filed with your regular annual income tax return. It only needs to be filed once. However, the timing of the filing can vary depending if the exchange was completed within the same calendar year or wrapped around into the following year.

An exchange between related parties can also affect when or if Form 8824 needs to be filed. Additional filings can also be required two years after a related party exchange.

Because of the complexities involved in a 1031 exchange and specific tax filer scenarios, it is best to work with a tax professional when filling out and filing Form 8824.

This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor.

Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation.

Costs associated with a 1031 transaction may impact investor's returns and may outweigh the tax benefits. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities.

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