Short answer: You report a 1031 exchange on IRS Form 8824, filed with your tax return for the year you sold the relinquished property, even if the replacement closes the next year. The form lists the properties and dates, figures your realized and recognized gain, and sets the tax basis of your replacement property.
Reviewed by Jon Hilley. Last updated September 29, 2026.
Every 1031 exchange is reported to the IRS on Form 8824, Like-Kind Exchanges. You file it with your federal income tax return for the year you transferred the relinquished property. That is true even if you close on the replacement property in the following year, and even if the exchange was fully tax-deferred and you owe nothing.
Form 8824 does three jobs. It tells the IRS what you exchanged and when, it calculates how much of your gain is taxable now (if any), and it sets the basis you will use to depreciate and eventually sell the replacement property. Any gain you do recognize then flows to Form 4797 or Schedule D. The IRS posts the form and the line-by-line Form 8824 instructions on its About Form 8824 page.
Key rules
- File for the year of the sale: Form 8824 goes with the return for the tax year in which you transferred the relinquished property (Form 8824 instructions)
- Taxable gain is limited to boot: You recognize gain only up to the cash, other non-like-kind property and net debt relief you receive, and never more than your realized gain (IRC §1031(b))
- Losses are not deductible in an exchange: A realized loss is deferred, not recognized (IRC §1031(c))
- Replacement basis carries over: Your new basis starts with your old adjusted basis, adjusted for boot received, gain recognized and extra money paid (IRC §1031(d))
- One form per exchange: If you completed more than one exchange in the year, you generally complete a separate Form 8824 for each, although the instructions also allow a summary form with an attached statement (Form 8824 instructions)
- Related-party exchanges need extra filings: Complete Part II and file Form 8824 again for each of the two years after the exchange (IRC §1031(f); Form 8824 instructions)
What goes on each part of Form 8824
Part I: the properties and dates
Part I describes the property you gave up and the property you received, with the date you originally acquired the old property, the date you transferred it, the date you identified the replacement and the date you received it. Your closing statements and the identification you delivered to your qualified intermediary give you these dates.
Part II: related-party exchanges
If you exchanged property with a related party, directly or through an intermediary, Part II asks for the related party's details and whether either side disposed of its property. Both parties generally must keep their properties for two years after the exchange, or the deferred gain is triggered. If a related party sold you the replacement property, directly or through an intermediary, and no exception applies, the form notes say not to report it as an exchange at all; you report the sale as taxable instead.
Part III: gain, recognized gain and basis
Part III is where the math happens. The lines you will look at most are:
- Line 15: cash and other property you received plus net liabilities relieved, reduced by exchange expenses
- Line 19: your realized gain
- Line 20: the smaller of line 15 or line 19
- Line 23: your recognized (taxable) gain
- Line 24: your deferred gain
- Line 25: the basis of the like-kind property you received
Part IV: conflict-of-interest sales
Part IV applies only to certain federal officers and employees who sell property to comply with conflict-of-interest rules (IRC §1043). Most investors leave it blank.
Where the numbers go next
Recognized gain on a rental or business property goes to Form 4797; gain on other investment property goes to Schedule D. The portion of that gain that reflects prior depreciation is taxed at a maximum 25% rate as unrecaptured §1250 gain, with the rest taxed as long-term capital gain.
Your closing agent also reports the sale on Form 1099-S, showing the gross proceeds. Form 8824 is where you show why that amount is not fully taxable. If you exchanged California property for property in another state, California also requires FTB Form 3840 each year; see 1031 exchange rules by state.
The basis on line 25 feeds your depreciation schedule. The carried-over part of the basis keeps depreciating on the old property's remaining schedule, and any excess basis is depreciated as newly acquired property (Treas. Reg. §1.168(i)-6).
If the exchange fails
If you sold in one year, identified property in good faith and the exchange then failed, with the funds released to you in the following year, the gain can generally be reported as an installment sale on Form 6252 in the year you receive the cash (Treas. Reg. §1.1031(k)-1(j)(2)). Nothing is reported on Form 8824 as a completed exchange.
Form 8824 example: reporting an exchange with some cash boot
Assume a rental property you bought for $550,000 and depreciated by $150,000, for an adjusted basis of $400,000. You sell it for $900,000 with no mortgage. Selling costs of $45,000 are paid from the proceeds, your qualified intermediary buys a $825,000 replacement for you, and $30,000 is released to you at the end.
- Proceeds not reinvested: $75,000 ($45,000 of selling costs plus $30,000 paid to you)
- Line 15, cash received reduced by $45,000 of exchange expenses: $30,000
- Line 16, fair market value of replacement property: $825,000
- Line 17, total of lines 15 and 16: $855,000
- Line 18, adjusted basis of property given up: $400,000
- Line 19, realized gain: $455,000
- Line 20, smaller of line 15 or line 19: $30,000
- Line 23, recognized gain: $30,000
- Line 24, deferred gain: $425,000
- Line 25, basis of replacement property: $400,000 ($400,000 + $30,000 - $30,000)
You defer $425,000 of gain and pay tax on $30,000. Because the $30,000 is less than the $150,000 of depreciation you took, all of it is unrecaptured §1250 gain, taxed at up to 25%, plus the 3.8% net investment income tax if it applies to you (state tax not included). As a check, the replacement basis also equals the $825,000 price minus the $425,000 deferred gain. This example assumes no ordinary-income recapture on line 21. You can run your own figures through our Form 8824 worksheet.
Other questions investors ask
Can you do a 1031 exchange by yourself?
No. You cannot hold the sale proceeds yourself, and your own attorney, accountant or real estate agent from the past two years cannot hold them for you. A qualified intermediary must receive the money and pass it to your replacement closing. See what a 1031 exchange facilitator does.
Common mistakes
- Skipping the form because no tax is due. We see investors assume a fully deferred exchange does not need reporting. It does, and a missing Form 8824 invites questions later.
- Leaving out mortgage relief. Debt paid off on the property you sold counts on line 15 unless it is offset by debt on the replacement or cash you added. Your closing statements for both sides are the source.
- Filing in the wrong year. When a sale closes in December and the purchase closes in March, the exchange belongs on the return for the year of the December sale. If the exchange is still open when your return is due, talk to your CPA or tax attorney about filing an extension.
- Depreciating the full purchase price. Starting a fresh 27.5- or 39-year schedule on the whole replacement price overstates your deductions. Line 25 sets the basis you actually have.
Run the numbers: try our free Form 8824 Worksheet.
