Form 8824 Preparation

Every 1031 exchange must be reported to the Internal Revenue Service using Form 8824, Like-Kind Exchanges, filed with the exchanger's federal tax return for the year the relinquished property closed, regardless of whether the replacement property closing occurred in the same tax year. Form 8824 preparation service compiles the exchange information Jacksonville area investors and their tax advisors need to complete this form accurately, since errors on Form 8824 are a common trigger for closer Internal Revenue Service scrutiny of an otherwise valid exchange.

What Form 8824 requires

Form 8824 requires a description of both the relinquished and replacement properties, the dates each property was originally acquired, transferred, and identified, the fair market value and adjusted basis of both properties, any boot received, and the resulting realized gain, recognized gain, and deferred gain. The form also requires disclosure of related party transactions if the exchanger acquired the replacement property from, or sold the relinquished property to, a related party, since these transactions carry additional two year holding period requirements under Section 1031.

Compiling accurate figures from the exchange file

We pull the closing statements, the qualified intermediary's settlement summary, and the boot planning analysis completed during the exchange to populate Form 8824 with figures that reconcile directly to the underlying transaction documents, rather than estimates. This is particularly important for the adjusted basis calculation, since it carries forward the depreciated basis of the relinquished property, adjusted for any boot received or additional cash invested, and an error here affects not just the current year's return but the depreciation schedule and future gain calculation for as long as the replacement property is held.

For exchanges spanning two tax years, meaning the relinquished property closed in one calendar year and the replacement property closed in the following year within the one hundred eighty day deadline, Form 8824 has specific rules about how to report the exchange, and in some cases the exchanger may need to consider whether to report the transaction as an installment sale for the gain not yet recognized. We flag this timing situation early so the exchanger's tax advisor has enough lead time to determine the correct reporting approach before the filing deadline.

Form 8824 preparation also documents any exchange expenses paid through the qualified intermediary, since certain transaction costs reduce the amount of boot or affect the basis calculation differently depending on how they were characterized and paid during the exchange.

We coordinate directly with the exchanger's tax advisor throughout Form 8824 preparation, providing the underlying exchange documentation and boot and basis calculations, since we do not prepare or file the tax return itself, but rather ensure the tax advisor has complete, accurate information to do so correctly and on time.

We also help exchangers understand why accurate Form 8824 preparation protects them well beyond the current filing season, since the figures reported establish the adjusted basis and depreciation schedule that will be used for the replacement property for as long as it is held, and any correction needed later, whether through an amended return or during an examination, is considerably more difficult and costly than getting the figures right the first time with complete supporting documentation.

Our process typically begins with collecting closing statements, the qualified intermediary's settlement summary, and boot and basis calculations from throughout the exchange, followed by organizing this information into a package formatted for direct use in Form 8824 preparation. We deliver this package to the exchanger's tax advisor with enough lead time before the filing deadline to allow for questions or additional documentation requests.

Because Form 8824 accuracy depends on complete and organized exchange documentation, coordinating this preparation early with the exchange file, rather than scrambling to reconstruct figures during tax season, reduces the risk of errors that could otherwise draw closer scrutiny to an exchange that was properly executed.