When is Form 8824 due?

Form 8824 is filed with the tax return for the year the replacement property was received. For calendar-year taxpayers, if the replacement was received in 2025, Form 8824 is due with the 2025 return (by April 15, 2026, or later with extension). The exchange itself must be completed within the 180-day window, but the reporting happens when the replacement is received.

Where does the Line 25 basis figure go next for depreciation?

Line 25 on Form 8824 shows the basis in the replacement property. This figure becomes the starting point for your client's depreciation schedule. You'll allocate it between land (non-depreciable) and building/improvements (depreciable over 27.5 or 39 years, depending on property class). The basis on Line 25 is usually much lower than the purchase price because it includes the carryover basis from the relinquished property, which is why clients are often surprised by lower depreciation deductions in subsequent years.

How do you report a partial exchange?

A partial exchange occurs when the client receives boot (cash or net debt reduction). Part III of Form 8824 handles this: the realized gain is reduced by the basis and adjusted for any boot paid, then the recognized gain is the lesser of the realized gain or boot received. The remaining gain is deferred. For example, if realized gain is $150K and boot received is $40K, you recognize $40K and defer $110K. Both figures are calculated on Form 8824.

What if the client did multiple exchanges in one tax year?

File a separate Form 8824 for each exchange. Each exchange has its own identification period, exchange dates, and properties, so they must be reported separately. You may see clients do two exchanges in one year if they sold two different properties. Each gets its own Form 8824 with its own Part III gain calculation.

What triggers IRS scrutiny on Form 8824?

Common audit triggers include: (1) basis that doesn't reconcile with prior year returns or depreciation schedules; (2) deferred gain that vanishes when the replacement is later sold (missing the carryover-basis adjustment); (3) related-party exchanges without documented follow-up (e.g., replacement property later gifted or sold); (4) line-item errors in dates, property descriptions, or value amounts; (5) boot treatment inconsistent with closing documents. The IRS cross-references Form 8824 with the subsequent Form 1040 Schedule D if the replacement property is later sold, so the basis and deferred gain must tie out.

Form 8824 (2025+): Advisor Walkthrough and Common Mistakes

Q: Do related-party exchanges require follow-up reporting in subsequent years?

Yes. Part II of Form 8824 identifies a related-party exchange (family members, entities controlled by the client, etc.). The critical rule: both the relinquished and replacement properties must be held for at least two years after the exchange date. If either is disposed of within two years, gain may be recaptured. You must track these properties and, if a premature disposition occurs, report it on Form 8824 for that year. It's a two-year monitoring obligation, not just a one-time filing.

14 min read · For Advisors · Last updated March 2026

Key Takeaways

Form 8824 must be filed for every 1031 exchange, even when zero gain is deferred. The three parts capture exchange details, related-party status, and the gain calculation that determines deferred versus recognized amounts. Missing documentation or miscalculating basis creates audit exposure.

Part I: Why Form 8824 Matters

Every 1031 exchange requires a Form 8824 filing, even if no gain is deferred. The IRS uses this form to track which properties were involved, when the exchange occurred, and how much gain was deferred versus recognized. Without proper filing, the deferral is not secured, and the entire gain becomes taxable.

Many practitioners make a critical mistake: they assume that because no gain is recognized in a particular year, Form 8824 is optional. It's not. You file the form in the year the replacement property is received. That's when the exchange is complete and the gain calculation is locked in.

The form has three main sections, and each one requires different information.

Part I: Exchange Information

This section captures the basic facts: what you sold, when you sold it, what you bought, and when you bought it.

Dates: The 45/180 Timeline

Lines 1a-1d ask for the relinquished property sale date and the identification and receipt dates for the replacement.

The sale date is straightforward: the closing date of the property you disposed of. The identification date is 45 calendar days later. The receipt date is 180 calendar days from the sale.

A common mistake: practitioners write "close to" or "approximately" the identification date. The IRS expects exact calendar counts. If the sale was March 15, the identification date is April 29 (45 days exactly). If you write May 1, you've missed it by one day and the identification is invalid.

The receipt date must be on or before 180 calendar days. If the closing is scheduled for day 179 or 180, you're compliant. If it slips to day 181, the entire exchange fails.

Property Descriptions: Specificity Matters

Lines 2 and 3 ask you to describe the relinquished and replacement properties. Write enough detail so a third party could identify the exact property. Use the legal description or at least street address, city, state, and county.

Vague descriptions like "rental property in California" or "commercial real estate" create audit risk. The IRS wants to confirm that the property sold is genuinely different from the property acquired (the "like-kind" test). A detailed description proves you followed the rules.

Values: Closing Statements Are Your Source

Lines 4 and 5 ask for the adjusted basis and fair market value of the relinquished property, and the FMV of the replacement.

The relinquished property's adjusted basis comes from your client's books, reduced by accumulated depreciation. Do not use the purchase price from years ago; use the current adjusted basis from the tax return or depreciation schedule.

The FMV of the relinquished property is typically the gross sale price shown on the closing statement, unless liabilities are involved (see the boot section below).

The FMV of the replacement property is the purchase price from the replacement closing statement.

Exchange Structure: QI Involvement

Lines 6a-6c ask whether a qualified intermediary was used and provide identification information. For modern 1031 exchanges, the answer is almost always yes. Provide the QI's name, address, and EIN.

The QI acts as a conduit: the sale proceeds go to the QI, not directly to your client. This is what makes the exchange non-taxable. Without a QI, the IRS may view the transaction as a sale followed by a reinvestment, which is taxable.

Document the QI engagement letter, the exchange agreement, and the QI's accounting statement showing how proceeds flowed from sale to replacement acquisition.

Part II: Related-Party Exchanges

If the relinquished and replacement properties are both owned by related parties (the client and spouse, client and child, etc.), or if entities are involved, Part II applies.

The rule: both properties must be held for at least two years after the exchange date. If either is disposed of within two years, the entire original gain is recaptured and becomes taxable in the year of disposition.

Example: Family Land Swap

Client (Maria) exchanges raw land (basis $100K, FMV $400K) for raw land owned by her sister (FMV $400K). Both sign the exchange agreement on Day 0.

If Maria's sister sells her property (the one Maria just gave her) on Day 400, Maria must report the recapture. Her $300K deferred gain becomes recognized, and she files Form 8824 again that year to report the recapture.

Many practitioners miss the follow-up filing. They file Form 8824 in Year 1 when the exchange completes, then forget to monitor the properties for two years. If a related-party disposition occurs and Form 8824 is not filed, the IRS will assess the tax when the return is examined.

Create a calendar reminder in your file: two years from the exchange date is when related-party monitoring ends.

Part III: Gain Calculation (The Core of Form 8824)

This is where the math lives. Part III calculates the realized gain, adjusts for boot received or paid, and determines the recognized gain and deferred gain.

The Realized Gain Formula

Realized Gain = Amount Realized - Adjusted Basis of Relinquished Property

Amount Realized includes:

Sale price (gross proceeds)
Plus any liability the buyer assumes (old mortgage, note, etc.)
Minus selling expenses (realtor commission, attorney fees, title insurance, escrow fees)

Worked Example: Rental Property Exchange

Maria sells a rental property with the following details:

Relinquished Property (Sale Side)

Gross sale price: $925,000
Old mortgage (assumed by buyer): $180,000
Realtor commission: 6% of $925,000 = $55,500
Closing costs (attorney, title, etc.): $4,500
Total selling expenses: $60,000
Adjusted basis in the relinquished property: $310,000 (original cost $450,000 minus accumulated depreciation $140,000)

Replacement Property (Purchase Side)

Purchase price: $975,000
New mortgage: $250,000
Cash paid at closing by Maria: $50,000 (added for down payment)
Exchange expenses (QI fees, 1031 advisor): $12,000

Step 1: Calculate Amount Realized

Amount Realized = $925,000 (sale price) + $180,000 (assumed liability) - $60,000 (selling expenses) Amount Realized = $1,045,000

Step 2: Calculate Realized Gain

Realized Gain = $1,045,000 - $310,000 Realized Gain = $735,000

This is the total economic gain from the exchange.

Step 3: Determine Boot Received

Boot is any non-like-kind property or net debt reduction.

Old debt: $180,000 New debt: $250,000 Debt changed by: $250,000 - $180,000 = $70,000 (Maria actually increased her debt, so zero mortgage boot)

Cash or other non-like-kind property: Maria did not receive any cash back. She added $50,000.

Boot Received = $0 (no mortgage boot, no cash)

Note: Maria added $50,000 cash, which is boot paid, not boot received. This reduces boot exposure but doesn't create recognized gain in this scenario.

Step 4: Calculate Recognized Gain

Recognized Gain = Lesser of Realized Gain or Boot Received Recognized Gain = Lesser of $735,000 or $0 = $0

Maria recognizes $0 gain and defers $735,000.

Step 5: Calculate New Basis (Preview of Part III, Line 25)

New Basis = Adjusted Basis of Relinquished Property + Boot Paid + Recognized Gain - Boot Received

New Basis = $310,000 + $50,000 + $0 - $0 New Basis = $360,000

Wait: But Maria paid $975,000 for the replacement property. Why is her basis only $360,000?

Because the basis carries forward from the old property. The $615,000 difference ($975,000 - $360,000) is the deferred gain, embedded in the property's basis structure.

Land allocation: Maria allocates the $360,000 basis as follows (from appraisal):

Land (35%): $126,000 (non-depreciable)
Building (65%): $234,000 (depreciable over 27.5 years = $8,509/year)

If the replacement had been purchased for $500,000 (lower price), Maria's basis would be lower still, and her recognized gain would increase because she'd receive mortgage boot (or cash boot) due to the lower purchase price.

Form 8824 Line-by-Line (Simplified)

Here's how the form maps to Maria's numbers:

Part I:

Line 1a (Relinquished sale date): [exact date]
Line 1b (Identification deadline): 45 days from sale
Line 1c (Receipt date): [exact closing date]
Line 2 (Relinquished description): [legal or street address]
Line 3 (Replacement description): [legal or street address]
Line 4 (Relinquished basis): $310,000
Line 5 (Relinquished FMV): $925,000
Line 6a (Replacement FMV): $975,000
Line 6c (QI involved): Yes

Part III (Gain Calculation):

Line 24 (Adjusted basis of relinquished): $310,000
Line 25 (Basis of replacement property): $360,000
Line 26 (Boot received): $0
Line 27 (Gain recognized): $0
Line 28 (Gain deferred): $735,000

(These line numbers are illustrative; consult IRS instructions for exact line placement in the current year's form.)

Common Mistakes and How to Avoid Them

Mistake 1: Incorrect Basis Due to Missing Depreciation

A client bought property 10 years ago for $500,000. They tell you their basis is $500,000. But they've been depreciating the building at $10,000/year. Their actual adjusted basis is $400,000, not $500,000.

Pull the prior year's return and depreciation schedule. Do not rely on the client's memory.

Mistake 2: Forgetting to Reduce Basis by Deferred Gain

After an exchange, practitioners sometimes calculate the new basis as if the property were purchased outright. So if Maria bought for $975,000, they put $975,000 on Line 25.

Wrong. The basis is the carryover amount: $360,000 in Maria's case. This is why depreciation deductions are lower going forward, which surprises clients.

Maintain a basis tracker or worksheet. Show clients the calculation so they understand why their tax basis is much lower than their economic investment.

Mistake 3: Wrong Date Entries

The 45-day identification deadline and 180-day receipt deadline are not suggestions. They are IRS requirements.

Use a calendar, count carefully, and document the exact dates on Form 8824. If the identification date is April 29, write April 29, not "late April."

Mistake 4: Filing Form 8824 Even When Gain Is Zero

This is actually correct: you file the form even when gain is deferred and zero is recognized. The form documents the deferral.

But some practitioners don't file when they think there's "nothing to report." This is an error. The form existence is the documentation that a 1031 exchange occurred.

Mistake 5: Related-Party Exchanges Without Follow-Up

You file Form 8824 Part II in Year 1. Then life happens, and you forget about the two-year holding period. If the related party disposes of their property on Day 400, and you don't file Form 8824 again, the IRS discovers the error on audit.

Create a tickler system for every related-party exchange: 24 months from the exchange date, confirm that both properties are still held. If a disposition occurred, file Form 8824 immediately.

Mistake 6: Missing Boot Calculation

Some practitioners focus only on whether cash was received and ignore mortgage boot or closing cost boot.

Boot = cash received + (old debt - new debt) + any non-like-kind property or cash paid for non-qualifying closing costs from exchange funds.

Run through the debt calculation every time. If old debt was $200K and new debt is $150K, the client received $50K in mortgage boot, even if no cash changed hands.

Documents to Request Before Preparing Form 8824

Use this checklist to gather everything before you sit down to prepare the form:

Relinquished Property Side

Closing statement (HUD-1 or Closing Disclosure) showing sale price, payoff of old debt, realtor commission, closing costs
Depreciation schedule showing accumulated depreciation and current adjusted basis
Original purchase documentation to verify initial basis
Any prior Form 8824s if this property was acquired in a previous 1031 exchange (to confirm the carryover basis)

Exchange Administration

Exchange agreement signed by client and QI, showing identification and receipt dates
QI accounting statement showing how proceeds flowed from sale to acquisition
Identification letter prepared by client or QI (confirming which replacement property was identified and when)

Replacement Property Side

Closing statement for the replacement property, showing purchase price, new mortgage balance, down payment, closing costs
Property appraisal (if available) showing allocation of value between land and building
Replacement deed

Supporting Documentation

All closing cost invoices (attorney, title company, inspections, appraisals)
Any correspondence with the QI regarding boot or deferred gain calculations

If Maria's exchange involves mortgage boot or cash boot, request: 13. Itemized closing cost breakdown to identify which costs came from exchange proceeds 14. Any cash distributions from the QI (even if zero)

Link to Related Resources

For a deeper dive on basis calculation, see Basis Tracking After a 1031 Exchange: Advisor Worksheet and Example.

For boot mechanics, see Boot for Advisors: Cash Boot, Mortgage Boot, and Hidden Boot.

To calculate tax savings from the deferral, use the 1031 Exchange Tax Savings Calculator.

The Bottom Line

File Form 8824 in Part I to describe the exchange, Part II if related parties are involved (and track subsequent disposition rules), and Part III to calculate deferred gain. Maintain disciplined documentation: both closing statements, QI accounting, exchange agreement, identification letter, depreciation schedules, and prior Forms 8824 if applicable.