Reporting
Your 1031 Exchange to the IRS
IRS
Tax Reporting Form 8824 Made Easier
Use IRS Tax
Reporting Form 8824 to report your 1031 exchange to the
IRS. It's a good idea to review the form now so you'll have
better idea of the types of information you or your accountant
will need to fill out the form. Though Form 8824 is probably
one of the most confusing reporting forms the IRS has ever
provided, we hope this information will make it easier for
you to fill out correctly. Many accountants and CPA's know
what the lines 19 through 25 should show but are not able
to get there by following the instructions. Feel free to contact
us for complimentary assistance with the form.
Three
Fold Purpose of IRS Form 8824
This form is easier to fill out correctly when you understand
it's three purposes.
First,
to have the taxpayer report the dates of sale and replacement
property closings, together with their identification dates.
This will verify that the 45/180 date requirements were satisfied.
Enter this information in Part One.
Second,
is for the taxpayer to set forth their sale and purchase numbers
(sale price, selling expenses, adjusted basis, depreciation
taken, cost of replacement property) to show whether there
was a full or partial exchange. Enter this information in
Part Three.
| Any
of the following situations indicates a partial exchange
and will trigger a tax. |
|
•
|
"Boot."
|
|
•
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Cash
that wasn't taken out. |
|
•
|
Failure
to acquire sufficient replacement property (caused by
falling short of meeting the fair market value (FMV) threshold
requirement). |
Third,
is to show the new tax basis of the replacement property.
Since the exchange is a deferral of taxes, the gain the taxpayer
had in their old property show ups (deferred) in the new property
via an equal amount of lesser basis than if the property was
purchased outright (without an exchange). Enter this information
in Part Four.
The information
provided in IRS Form 8824 makes it easy for the IRS to review
a taxpayer's prior 8824 Forms to verify that the appropriate
amount of taxable gain is calculated and correct taxes paid,
if and when the taxpayer ultimately decides to sell and not
exchange.
[Capital
Gains Tax Rates] [How
to Choose a 1031 Exchange Facilitator] [Reporting a 1031
Exchange to the IRS] [Use Real
Estate to Accumulate Wealth]
For
more information about 1031 exchanges contact
us
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