How to Fill Out IRS Form 8824 (Worked Example + Common Mistakes)

What Is Form 8824 and When Do You File It?

Form 8824, "Like-Kind Exchanges," is the IRS form you use to report any 1031 exchange to the IRS. You file it with your tax return for the year in which the exchange is completed.

"Completed" means the year your sale of the relinquished property closes.

Example:

• Your exchange begins on March 1, 2025 (45-day identification deadline April 15, 180-day deadline August 28)
• You close on your relinquished property sale on June 1, 2025
• You close on your replacement property on August 15, 2025
• You file Form 8824 with your 2025 tax return in early 2026

The year of completion is 2025, so the form goes in your 2025 return.

The form is only three pages, but filling it out requires accurate information about:

• Your relinquished property (address, date acquired, date sold, basis, sale price)
• Your replacement property (address, date acquired, cost)
• Your qualified intermediary (name, EIN, address)
• Your identification dates (45-day deadline, 180-day deadline)
• Your realized gain and recognized gain calculation

Let's walk through the form section by section using a worked example.

Worked Example: Rental Property Exchange

Facts:

• Relinquished property: 123 Main Street, Denver, CO (rental house)

• Date acquired: January 15, 2015

• Original cost: $350,000 (allocated $280,000 building, $70,000 land)

• Depreciation claimed: $168,000 (over 10 years)

• Adjusted basis: $350,000 - $168,000 = $182,000

• Sale price: $800,000

• Less sale commission (6%): ($48,000)

• Less closing costs: ($2,000)

• Net proceeds: $750,000

• Mortgage balance: $150,000

• Net equity: $600,000

• Qualified Intermediary: ABC 1031 Exchange Services, EIN 12-3456789

• 45-day identification deadline: July 2, 2025

• 180-day exchange deadline: December 28, 2025

• Identified replacement property on June 20, 2025 (within 45 days): 456 Oak Avenue, Denver, CO

• Replacement property cost: $825,000

• Mortgage on replacement: $300,000

• QI paid out of exchange proceeds: $1,000

• Acquisition closed: December 20, 2025 (within 180 days)

Gain Calculation:

• Sale price: $800,000
• Less adjusted basis: ($182,000)
• Realized gain: $618,000
• Boot received: $0 (sale and acquisition balanced; depreciation is not boot)
• Recognized gain: $0 (no boot received)

Note: Depreciation recapture is separate from recognized gain for 1031 purposes. You'll have $0 recognized gain under Section 1031, but $168,000 in depreciation recapture taxed at 25% separately.

Form 8824 Part I: Information About the Exchange

Part I is basic identification information:

• Your name and SSN (or EIN if filing as a partnership/entity)
• Your address

Line 1a: Description of relinquished property:

Enter the address or description: "123 Main Street, Denver, CO 80202" or "Real property, residential rental house, 0.35 acres"

Line 1b: Date relinquished property was acquired:

January 15, 2015

Line 1c: Date relinquished property was sold (or relinquished for exchange):

June 1, 2025 (the closing date of your sale)

Line 2a: Description of replacement property:

"456 Oak Avenue, Denver, CO 80202" or "Real property, residential rental house, 0.4 acres"

Line 2b: Date replacement property was acquired:

December 20, 2025 (the closing date of your acquisition)

Line 2c: Date your 45-day identification period ended:

July 2, 2025

Line 2d: Date your 180-day exchange period ended:

December 28, 2025

(You don't need to identify whether you met these deadlines here; the form assumes you did. If you missed a deadline, you'll disclose this when reporting non-qualified exchanges.)

Line 3: If you identified more than one replacement property, how many:

In our example, you identified one property (456 Oak Avenue) on June 20. If you'd identified multiple properties, you'd indicate the count. If you used the three-property rule (identified three or fewer properties and acquired all three), you'd note that here.

Line 4: If you identified more than three replacement properties in value, check this box:

The three-property rule says you can identify unlimited properties as long as their total value doesn't exceed 200% of the relinquished property value.

In our example: relinquished property value ($800,000), 200% = $1,600,000. If you identified properties totaling more than $1,600,000, you'd check this box.

You didn't, so leave this blank.

Line 5: Check whether you used the three-property rule or the 200% rule:

You identified one property, so you met both rules. You can check either or both. In practice, you'd check the three-property rule (identified fewer than three properties) to be conservative.

Form 8824 Part II: Related Party Exchanges

Part II applies only if you're doing a related party exchange (buying from or selling to a family member, business partner, or related entity).

Most investors don't do related party exchanges. If you're not doing one, skip Part II.

In our example: You're selling to an unrelated third party and buying from an unrelated party. Skip Part II.

If you ARE doing a related party exchange:

• Both parties must intend to hold their properties for at least two years after the exchange
• If either party disposes of their property within two years, both parties must recapture the deferred gain and pay tax
• You report both properties and both parties on Part II

This is complex. If you're doing a related party exchange, work directly with your CPA.

Form 8824 Part III: Realized and Recognized Gain

This is the core calculation where most mistakes occur.

Line 20: Basis of relinquished property:

This is your adjusted basis (original cost minus depreciation and any prior adjustments).

Our example: $182,000

Line 21: Gain or loss realized on the sale:

Sale price ($800,000) minus basis ($182,000) = $618,000 realized gain

Line 22: Boot received:

This is where you report any cash boot, mortgage boot, or other boot. In our example, zero. (The depreciation is not boot; it's recaptured separately.)

$0

Line 23: Gain recognized under Section 1031:

This is the lesser of gain realized or boot received. In our example, zero boot means zero recognized gain under 1031.

$0

Line 24: Ordinary income recapture:

This is where you report depreciation recapture. In our example:

Depreciation claimed: $168,000 Depreciation recapture: $168,000 (at 25% rate)

Enter $168,000

Total tax liability on the exchange in our example:

• Recognized gain: $0 × 20% long-term capital gains rate = $0
• Depreciation recapture: $168,000 × 25% = $42,000
• Total federal tax: $42,000

(State tax would be additional)

Basis of Replacement Property Calculation

This isn't directly on Form 8824 but is important for your records.

Your basis in the replacement property is:

Formula: Basis = Replacement Property Cost - Deferred Gain

Our example:

• Replacement cost: $825,000
• Realized gain in exchange: $618,000
• Boot received: $0
• Recognized gain (and taxed): $0
• Deferred gain: $618,000
• Depreciation recapture (taxed separately): $168,000

Basis in replacement property: $825,000 - $450,000 = $375,000

Wait, let me recalculate this.

Actual formula:

Basis = Cost - (Realized Gain - Recognized Gain)

$825,000 - ($618,000 - $0) = $825,000 - $618,000 = $207,000

This is your starting basis for depreciating the replacement property going forward. After you claim depreciation on this replacement property, your adjusted basis will decrease.

(The depreciation recapture is separate from the basis calculation.)

Common Form 8824 Mistakes

Mistake 1: Wrong Adjusted Basis

You report your original purchase price as basis without subtracting depreciation.

Example: You bought for $350,000 and claimed $168,000 in depreciation. Your adjusted basis is $182,000, not $350,000.

If you report $350,000 as basis, you've understated your gain by $168,000. Your realized gain shows lower than it should, and the IRS will correct it on audit.

Prevention: Get a depreciation schedule from your CPA showing total depreciation claimed. Adjusted basis = original cost minus depreciation minus any other adjustments.

Mistake 2: Forgetting About Depreciation Recapture

You fill out the form reporting $0 recognized gain under Section 1031, thinking you owe no tax.

You forget that depreciation recapture (Section 1245) is taxed separately at 25%.

You don't report the recapture on Form 8824 or elsewhere on your return. You file a return showing the exchange deferred all gain and you owe no tax.

The IRS sends a notice: depreciation recapture should have been reported and taxed.

Prevention: Understand that depreciation recapture is separate from Section 1031 gain deferral. Recapture is always taxed, even in a perfect 1031 exchange. Work with your CPA to report recapture on the correct line of your Form 1040 (or Schedule D, depending on how your return is structured).

Mistake 3: Not Filing Form 8824 When No Boot Was Received

You complete a perfect 1031 exchange. Your realized gain is $500,000, but you received no boot, so your recognized gain is $0. You think, "I owe no tax, so I don't need to file the form."

You don't file Form 8824.

Three years later, the IRS audits you. They ask why there's no 8824 filed for a property sale in 2024. They assume you failed to do the exchange properly and assess gain on the full $500,000 plus penalties.

Prevention: File Form 8824 every time you do a 1031 exchange, even if you recognize zero gain. The form reports the exchange itself, not just the tax owed. It's a required disclosure.

Mistake 4: Incorrect Property Descriptions

You describe the relinquished property as "commercial real estate" without a specific address.

The IRS has difficulty matching the property on the form to the property on your sale documents. They send an inquiry.

Prevention: Use specific property addresses and descriptions. Include street address, city, state, ZIP code. If the property has a legal description, include that as well.

Mistake 5: Wrong QI Information

You list your qualified intermediary as "John Smith" without confirming the correct legal entity name or EIN.

The actual QI entity is "John Smith 1031 Services LLC" with EIN 55-6789012.

The IRS tries to match the QI information and fails. They send an inquiry asking for clarification.

Prevention: Get the correct legal name and EIN of your QI from the exchange agreement or from the QI directly. Confirm before filing.

Mistake 6: Reporting Boot Incorrectly

You received $25,000 in cash boot but reported it as $0 on the form. You thought the form didn't apply to you because you were deferring some gain.

You owe tax on the $25,000 boot but never reported it.

The IRS receives your form showing $0 boot, cross-references your 1099-S from the sale (which showed a $600,000 gross sale price), and flags the return for inconsistency.

Prevention: Report all boot accurately. If you received cash boot, mortgage boot, or any other boot, disclose it on line 22. Work with your CPA to calculate recognized gain correctly.

Mistake 7: Missing Deadlines and Not Disclosing

You missed your 45-day identification deadline. You identified properties on day 46.

Or you missed your 180-day exchange deadline. Your replacement property didn't close until day 185.

You file Form 8824 as if the exchange was successful, without disclosing that you missed the deadline.

The IRS doesn't know you missed the deadline unless you tell them. Eventually, they might realize it on audit, or you might voluntarily disclose it.

Prevention: If you missed a deadline, work with your CPA and tax advisor to determine whether you qualify for any safe harbor relief. You might file a protective claim for refund or amend your return later. Don't file the form as if you met the deadlines if you didn't.

Documentation Checklist: Gather Before Tax Time

Before your CPA fills out Form 8824, gather these documents:

Relinquished Property:

• Original purchase documents (closing statement, deed showing date and cost)
• Depreciation schedule showing total depreciation claimed (ask your prior CPA)
• Prior years' tax returns claiming depreciation
• 2024 sale closing statement (showing sale price, commission, closing costs, proceeds)
• Mortgage payoff statement
• Title commitment or title insurance policy

Replacement Property:

• Purchase agreement showing identification date
• Closing statement showing acquisition date and cost
• New mortgage documents showing loan amount
• Qualified intermediary's final accounting showing funds received, funds disbursed, and any remaining balance

Exchange Timeline:

• Exchange agreement from your QI
• Identification letter sent to your QI confirming the property identified (should be before day 45)
• Confirmation of all deadlines

Qualified Intermediary:

• QI's legal name and EIN
• QI's address

Working with Your CPA on Form 8824

Form 8824 is the intersection of real estate, tax, and 1031 exchange law. Your CPA should prepare this form, but you should understand what it's reporting.

Before your CPA prepares the form:

1. Confirm your adjusted basis (get the depreciation schedule)
2. Confirm your realized gain (sale price minus basis)
3. Confirm any boot received
4. Confirm your replacement property cost and timing
5. Confirm your QI's information
6. Confirm you met your identification and exchange deadlines

When your CPA gives you the draft form:

1. Review the property descriptions and make sure they're accurate
2. Review the dates (acquisition date, sale date, identification deadline, exchange deadline)
3. Review the gain calculation
4. Confirm the depreciation recapture treatment

Don't blindly sign off. Understand the numbers on the form.

Key Takeaway

Form 8824 is required for every 1031 exchange, even ones that defer all gain. The form itself is three pages of mostly straightforward information. But the gain calculation requires accuracy.

The most common mistakes are:

1. Wrong basis (forgetting depreciation)
2. Forgetting depreciation recapture (which is separate from Section 1031 gain)
3. Not filing when no boot was received
4. Reporting boot incorrectly
5. Missing deadlines and not disclosing

Use this guide to understand each section of the form. Gather your documentation before tax time. Work with your CPA, but ask questions if something doesn't make sense.

Calculate your specific numbers before filing to confirm the gain and boot on your form. If there's any doubt about basis or recapture treatment, consult your CPA or an experienced 1031 advisor.