Your Exchange Is Not Finished at Closing: Reporting It on Form 8824

After the relief of closing on a replacement property, most investors consider the exchange done. From a tax perspective it is not. The IRS needs to be told that a like kind exchange took place, what was exchanged, and how the deferral was calculated.

That is the job of Form 8824, Like Kind Exchanges. Filing it correctly is what turns a well structured transaction into a documented, defensible deferral.

What is Form 8824?

The IRS form used to report like kind exchanges under Section 1031. It is filed with your federal income tax return for the year in which you transferred the relinquished property.

It records the properties involved, the key dates, whether the exchange involved a related party, and the calculation of any recognised gain and the basis of the replacement property.

When is it filed?

With the tax return for the year the relinquished property was transferred, even if the replacement was acquired the following year.

If you sold in November 2026 and bought the replacement in March 2027, the exchange is reported on your 2026 return. If the replacement was not yet acquired when you would normally file, you may need to extend the return, both to report the exchange properly and because the exchange period can be cut short by your return due date if you do not extend.

What information does it require?

In broad terms, the form asks for:

• ›Descriptions of the properties given up and received
• ›Key dates: when you acquired the relinquished property, when you transferred it, when you identified the replacement, and when you received it
• ›Related party information, if the exchange involved a related person, and follow up reporting in later years
• ›Values and adjusted basis of the properties
• ›Cash, debt relief and other boot received or given
• ›Recognised gain, if any, and the deferred gain
• ›Basis of the replacement property

Your closing statements and exchange documents contain most of this information. Your Qualified Intermediary's records confirm the dates and the movement of funds.

Why does the related party section matter?

If the exchange involved a related party, the form includes questions that must be answered for the year of the exchange and for the following two years. This supports the rule that both related parties generally must hold their properties for two years. Failing to complete the follow up reporting can create problems if the exchange is examined.

What about state reporting?

Many states follow federal treatment and have their own reporting. California, for example, requires Form 3840 for exchanges of California property into out of state property, and requires it every year while the gain remains deferred. Other states have their own rules and withholding forms.

Tell your CPA where both properties are located so state requirements are not missed.

What are common reporting mistakes?

• ›Not filing Form 8824 at all, because no tax was owed
• ›Reporting the exchange in the wrong year
• ›Omitting boot, such as prorations or cash received at closing
• ›Miscalculating the replacement basis, which affects future depreciation and gain
• ›Missing related party follow up reporting
• ›Forgetting state forms

Why does the replacement basis calculation matter so much?

Because it follows you. The basis on Form 8824 becomes the starting point for depreciation on the replacement property and for calculating gain when it is eventually sold or exchanged again. An error today can distort years of tax returns.

Keep a copy of Form 8824 with the replacement property's permanent records. If you exchange again, your CPA will need it.

What does the basis calculation look like?

In simple terms, the replacement property's basis generally starts with the adjusted basis of the property you gave up, is increased by any additional cash you paid and any new debt you took on, is increased by any gain you recognised, and is decreased by any cash or debt relief you received.

An example: you sell a property with an adjusted basis of 400,000 dollars for 1 million dollars and buy a replacement for 1.2 million dollars, adding 200,000 dollars of new debt. No boot is received. The replacement basis is roughly 400,000 dollars plus 200,000 dollars, or 600,000 dollars, while the property is worth 1.2 million. The 600,000 dollar difference is the deferred gain.

Your CPA will calculate the exact figures including transaction costs, but understanding the logic helps you check the result and keep the right records.

How long should you keep exchange records?

For as long as you own the replacement property and any later property acquired by exchanging it, plus the period in which returns can be examined after the final sale. Because basis carries through an exchange chain, records from the first property can matter decades later. Keep them together with each Form 8824.

What to do first

After closing, gather both settlement statements, the exchange agreement, identification documents and the intermediary's final accounting, and send them to your CPA with a note of the dates. If your replacement closes near your return due date, discuss an extension early rather than filing without the exchange complete.

Nothing here is tax, legal or investment advice. Reporting requirements depend on your facts and on current forms and instructions. Confirm your position with your CPA.