The reporting year generally follows the transfer of the relinquished property, not the date you closed on the replacement. Boot, debt, basis, related parties, interest and failed exchanges can all change the analysis.
This guide covers the workflow: pick the right year, gather records, complete Form 8824, carry amounts to the right schedules, and avoid the common errors. It also flags issues for Australian investors with US property.
Key Takeaways
- File Form 8824 for every qualifying exchange, even with zero recognised gain.
- Report in the year the relinquished property was transferred.
- Reconcile dates, proceeds, debt, expenses and basis to closing and intermediary records.
- Deferral is not elimination; track deferred gain and replacement basis.
- Boot, related parties, failed exchanges, state rules and cross-border issues need professional review.
How to Report a 1031 Exchange on Form 1040 Using Form 8824
The IRS currently links the 2025 Form 8824 and its instructions. Check the line numbers below against the revision you are filing.
Step 1: Determine the correct reporting year and transaction type
Confirm the exchange involves real property held for business or investment. Since 2017, Section 1031 covers real property only. Property held primarily for sale is excluded, and so is property used solely as a personal residence.
Then identify the date the relinquished property was transferred. That date sets the tax year. Also check whether the exchange:
- Spans two tax years
- Involved a related party
- Produced cash or other non-like-kind value
Step 2: Gather and reconcile the information
Collect these items:
- Acquisition and transfer dates, plus the written identification date and replacement receipt date
- Legal descriptions of both properties
- Sale proceeds, exchange expenses, debt and any cash received
- Adjusted basis and depreciation history
- Qualified intermediary (QI) statements and Forms 1099-S
Reconcile every figure to settlement statements, loan records and purchase documents. Never copy numbers from one source alone. Form 1099-S is separate from Form 8824, and a noncash exchange can show zero gross proceeds.
Step 3: Complete Form 8824 and calculate recognised gain
The form runs in three parts:
- Part I (lines 1-7): property descriptions, acquisition, transfer, identification and receipt dates, and the related-party question
- Part II (lines 8-11): related-party details, dispositions during the monitoring period, and exceptions
- Part III (lines 15-25): the calculation
In Part III:
- Line 15 captures cash, other property and net debt relief, less expenses
- Line 18 builds up adjusted basis
- Line 19 is realised gain
- Line 20 takes the smaller of lines 15 and 19
- Line 23 is recognised gain; line 24 is deferred gain
- Line 25 is replacement basis (line 18 plus line 23 minus line 15)
Don't count the same expense on both line 15 and line 18.
Step 4: Attach the form and carry amounts forward
Attach Form 8824 to your return. Then route any taxable amounts:
- Line 21 ordinary recapture goes to Form 4797, line 16
- Line 22 business or noncapital gain goes to Form 4797; capital-asset gain follows the Schedule D instructions
- Instalment treatment uses Form 6252
Each separate exchange generally needs its own form, though a summary version is allowed with full statements attached. Filing the form does not replace reporting taxable boot or interest income.
What You Need Before Filing Form 8824 and Key Parameters
Records and filing prerequisites
Pull together:
- Prior returns and depreciation schedules
- Acquisition and closing statements, and title documents
- QI agreement and statements
- Replacement-property documents
- Loan payoff statements
- Forms 1099
Keep taxpayer identity consistent across the relinquished property, replacement property, exchange documents and return.
Other entity rules to watch:
- A single-member LLC without a corporate election is disregarded for income tax, so its activity lands on the owner's return
- Partnership interests are not qualifying real property, with a narrow exception
- Partnerships, corporations and trusts need professional review
Tax year and timing
The identification deadline is 45 days after transfer. Completion is due by the earlier of 180 days or the transfer-year return due date, including extensions, per Section 1031.
A return extension only affects the due-date limb. It does not stretch the 45-day or 180-day limits. Disaster relief exists under Rev. Proc. 2018-58, but only when the IRS has activated it for your situation.
Cash, debt, expenses and other value
Cash, non-like-kind property and net debt relief are boot, and they can trigger recognised gain.
Disposition closing costs such as brokerage commissions, attorney fees and deed-preparation fees generally reduce the amount on line 15. Interest earned on held proceeds is separate interest income under your accounting method.
Basis, depreciation and accounting records
Replacement basis is not an automatic reset to fair market value. Under Reg. 1.168(i)-6, depreciation splits into exchanged basis, which continues the old recovery schedule, and excess basis, which is treated as newly placed in service.
In your books, record the disposal of the relinquished property, the replacement property, the deferred gain, any boot and related liabilities. Keep book accounting distinct from tax reporting.
If you need help organising those records, Australian investors and multinational businesses with US filing obligations can work with VJM Global. Its U.S.-compliant professionals support accounting and tax-compliance records, and Form 1040 preparation. This is support with records and compliance, not a promise of any tax result or a substitute for individual advice.
Common Mistakes and Troubleshooting Form 8824
Common mistakes when filing
- Filing in the year the replacement property was acquired rather than the year of transfer
- Omitting the form because the exchange looks fully deferred
- Assuming any real estate is "like-kind" (dealer inventory and personal-use property fail)
- Ignoring boot, debt reduction, interest, depreciation recapture or state requirements
- Using one form for several exchanges without the summary method
- Entering inconsistent dates or skipping Form 1099 reconciliation
- Confusing a failed exchange with a completed exchange that has taxable boot
Rev. Rul. 2002-83 shows how a related-party cash-out can sink an exchange even when an unrelated QI is used.
Troubleshooting issues while preparing the return
Treat troubleshooting as reconciliation. Compare Form 8824 with:
- Closing statements and QI records
- Prior depreciation schedules
- Lender documents and your books
Problem 1: Unexpected recognised gain or replacement basis. Recheck omitted boot, debt relief, exchange expenses, depreciation, adjusted basis and the transfer date.
Problem 2: The exchange began in one year, was incomplete at filing time, or failed. Verify whether an extension, instalment treatment or another method applies. An extension does not change exchange deadlines.
If a bona fide exchange failed, Reg. 1.1031(k)-1(j) may preserve instalment treatment. Payment generally occurs when the QI pays you.
Get professional review before filing an amended return (Form 1040-X), Form 6252, or any return involving a failed exchange, related parties or cross-border reporting.
When to Report Form 8824 and Alternatives
When should you report a 1031 exchange?
Report the exchange on the return for the year you transferred the relinquished property. If the transaction does not qualify, report it as a taxable sale or under the method that applies.
These situations need extra review:
- Failed exchanges and replacement property acquired in a later year
- Related-party exchanges, which require Form 8824 for the following two years
- Seller financing
- State rules: California's FTB 3840 annual tracking, plus non-resident withholding in states such as Oregon and South Carolina
- Australian taxpayers' home-country obligations
Australian investors: separate tests
If you are an Australian resident, treat US recognition, withholding and Australian tax as separate questions:
- FIRPTA withholding can still apply to a foreign person despite a 1031 exchange, and a withholding certificate on Form 8288-B may be needed.
- The US-Australia treaty lets the US tax gains on US real property, with Australian credit relief subject to local limits.
- The ATO treats these disposals as CGT events. ATO guidance confirms that selling a rental property and buying another does not give rollover relief in Australia.
- You can claim a foreign income tax offset only once the foreign tax is actually paid.
Alternatives to reporting a qualifying exchange
- Ordinary sale: report the gain in full. You lose deferral but avoid the exchange deadlines and monitoring.
- Instalment sale: report gain as payments arrive using Form 6252. Recapture is still recognised in the sale year, and dealer property and certain related-party sales are limited.
An instalment sale is not an automatic substitute for Form 8824. Debt, boot, related parties or a failed exchange change the analysis.
Conclusion
Accurate 1031 reporting comes down to the right tax year, a carefully completed Form 8824, and recognized amounts carried to Form 1040 and the correct schedules.
Most serious errors trace back to :
- Inconsistent dates
- Missing records
- Wrong basis or debt figures
- Treating deferral as if the gain vanished
Complex or cross-border situations deserve professional review. VJM Global's U.S.-trained professionals support Form 1040 preparation for taxpayers in that position.
Frequently Asked Questions
How much does a 1031 exchange typically cost?
Costs depend on QI fees, legal and tax advice, title and closing charges, financing and complexity. Ask for itemised estimates and separate them from expenses that may count in the exchange calculation.
How do I report a 1031 exchange on my Form 1040?
File Form 8824 with the return for the year the relinquished property was transferred. Report any recognised gain or related income on the applicable forms after checking the current instructions.
Do I need to file Form 8824 to report a 1031 exchange?
Yes, a qualifying exchange is generally disclosed on Form 8824, even when little or no gain is recognised. Each exchange may need a separate form.
How do I record a 1031 exchange in accounting?
Remove the relinquished property, record any boot or taxable gain, and carry the replacement property at its tax basis for tax purposes. Reconcile book and tax records.
What is the 2-year rule for 1031 exchanges?
It applies to related-party exchanges: a disposition by either party within two years of the last transfer can reverse nonrecognition. It is not a universal holding rule. Exceptions include death and compulsory disposition.
What expenses are deductible in a 1031 exchange?
Closing costs such as brokerage commissions, attorney fees and deed-preparation fees generally enter the exchange calculation rather than being deducted separately. Confirm treatment under current IRS guidance.
