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If during the current tax year you transferred property to another party in a like-kind exchange, you must file Form 8824 with your tax return for that year. Also file Form 8824 for the 2 years following the year of a related party exchange.
This involves filling out IRS Form 8824 and submitting it along with your federal income tax return. Each individual 1031 exchange you undertake within a tax year requires a separate Form 8824 to be accurately recorded.
There is no tax penalty for starting an exchange and cancelling it or failing to complete the exchange.
What are the IRS rules for a 1031 exchange? Needs to be like-kind property. Must be the same taxpayer. Needs to be investment or business property. Property must be of equal or greater value. Must follow the 1031 exchange timeline.
The IRS provides line-by-line instructions for completing Form 8824, but investors should consider passing this duty off to an accountant well-versed in 1031 tax laws and regulations since the form cant be amended once its submitted. This material is for general information and educational purposes only.
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REPORTING THE GAIN Taxable gain is then reported on Form 4797 or Schedule D, depending on the character of the property given up. Gain must be allocated between ordinary income depreciation recapture, unrecaptured 1250 gain, Section 1231 gain, and capital gain.
Purpose of Form Use Parts I, II, and III of Form 8824 to report each exchange of business or investment real property for real property of a like kind. Form 8824 figures the amount of gain deferred as a result of a like-kind exchange.
The portion of the exchange proceeds not reinvested is called boot and is subject to capital gains and depreciation recapture taxes. Usually, boot is in the form of cash, an installment note, debt relief or personal property and is valued to be the fair market value of the non-like-kind property received.
In fact, failure to file Form 8824 might treat your like-kind exchange as a sales transaction subject to all kinds of taxes. So, in answer to what happens if you dont file Form 8824, the answer could be nothing. Or it could be non-recognition of your 1031 exchange, complete with expensive consequences.
How do you report Section 1031 Like-Kind Exchanges to the IRS? You must report an exchange to the IRS on Form 8824, Like-Kind Exchanges and file it with your tax return for the year in which the exchange occurred.

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