A Step-by-Step Guide on How to Report a 1031 Exchange on Tax Return

Reporting a 1031 exchange on your tax return can be a complex process, but breaking it down into steps makes it more manageable.

You'll need to file Form 8824, Like-Kind Exchange, to report the exchange to the IRS. This form helps the IRS determine whether the exchange qualifies for tax-deferred treatment.

The deadline for filing Form 8824 is the same as the deadline for filing your tax return, typically April 15th of each year.

You'll need to report your 1031 exchange on your tax return for the year the relinquished property was transferred, even if the exchange wasn't completed until a later year. This is true even if the exchange will not be completed by the deadline for filing, in which case you may need to file for an extension using Form 4868.

Filing the return before the exchange is complete will automatically end the exchange and the capital gains would not be deferred. So, it's essential to wait until the exchange is complete before filing your tax return.

If the exchange fails, the money received can be treated as an installment sale and reported on the tax return of the year the money was received, provided you can demonstrate bona fide intent to complete the exchange.

You'll need to complete Form 8824 to report the exchange, and you must file it along with your federal income tax return. If you completed more than one exchange, you'll need to complete a different form for each exchange.

Your settlement agent will file a 1099-S upon the sale of your property, and you'll need to file Form 8824 along with your return to notify the IRS that you did an exchange on that sale and may have deferred your tax liability.

A 1031 exchange is reported on the tax return for the tax year the relinquished property was transferred, even if the exchange wasn't completed in that same year.

You can start an exchange in one calendar year, but if you're unable to acquire the replacement property and the exchange fails in the following calendar year, the money received can be treated as an installment sale and reported on the tax return of the year the money was received.

Form 8824, Like-Kind Exchanges, is the specific form you should complete to report an exchange of business or investment real estate for like-kind property.

You must demonstrate bona fide intent to complete the exchange in order to treat the money received as an installment sale.

Real estate located within the U.S. can only be replaced by property located within the U.S., so you can't sell a rental in Seattle and purchase a rental in Cancun under the like-kind exchange rules.

You can't use a 1031 exchange if you're holding property primarily for resale, but if you rent the property out before selling it, it can qualify for this beneficial tax treatment.

Reporting a 1031 exchange on your tax return can be a bit tricky, but understanding the timing and deadlines is key.

You'll report the exchange on the tax return for the year the relinquished property was transferred, even if the exchange isn't completed in the same year. For example, if you started an exchange in November 2021 and completed it in February 2022, you'll report it on your 2021 tax return.

If you're unsure when to file, here are some basic rules to keep in mind:

You'll need to fill out specific tax forms and provide information about the properties for the IRS. It's a good idea to consult a tax advisor about the specifics of reporting each exchange.

In a delayed exchange, you have two timing obligations to meet after the sale of your original property. First, you must identify the replacement property within 45 days, and second, you must close on the replacement property within 180 days.

To report a 1031 exchange on your tax return, you'll need to complete the correct form. Form 8824, Like-Kind Exchanges, is specifically designed for this purpose.

You can find detailed guidance on completing this form in the 1031 Investor's Guidebook. This resource is a valuable tool for navigating the process.

To file Form 8824, you'll need to attach it to your tax return, providing all necessary information about the exchange.

To report an exchange of business or investment real estate for like-kind property, you should complete Form 8824, Like-Kind Exchanges.

Form 8824 is the specific form you'll need to fill out to report this type of exchange, so make sure to use it.

The IRS provides a guidebook, the 1031 Investor's Guidebook, to help you tackle the process of completing your 1031 exchange.

This guidebook can be a valuable resource as you navigate the art and science of completing your exchange.

SECURITIES DISCLOSURE

If your 1031 exchange falls through, it might not be taxed immediately, and you may still be able to defer your capital gains.

You may have a partial tax-deferred exchange or be able to push income tax on the failed 1031 exchange into the following tax year.

Filing Form 8824 with your income tax return notifies the IRS of an exchange on a sale, which may have deferred your tax liability for that taxable year.

The federal statute of limitations for audits from the IRS related to income tax is three years from the date your income tax return was filed.

If the exchange was not completed in the same year it was started, the exchange will be reported on your tax return for the year the relinquished property was transferred, even if the exchange was not completed in that same year.