When investors complete a 1031 Exchange, they are required to report the details to the IRS on IRS Form 8824. Failure to file this form and correctly report the required information can result in a reversal of your 1031 Exchange and potentially trigger penalties. This form must be completed and filed along with your tax return at the end of the tax year in which you sold your relinquished property and began your 1031 Exchange. The form must be completed and filed even if you have not yet completed your 1031 Exchange.
Form 8824 can be downloaded HERE. Please review the following overview since this form can initially be confusing to even sophisticated investors.
The form contains four separate sections, Parts I, II, III, and IV. Part II must be completed if the 1031 Exchange was completed between related parties. Part IV is to be used only by Federal Government officials to comply with conflict-of-interest requirements. Therefore, most investors will only need to be concerned about completing Parts I and III of the form.
The starting point to complete Form 8824 is to refer to the closing statement of your relinquished property – ideally with a qualified tax advisor. You will generally receive this closing statement at the end of your sale from your title company/escrow officer. Your closing statement will contain the following line items that should be entered on Form 8824:
- Names of Buyer and Seller
- Property address/legal description
- Closing date
- Contract sales price
- Value of personal property in the transaction
- Loan repayment amount
- Earnest money deposit
- Amount of any new loan or details on any loan that was assumed
- Total real estate commissions paid
- Amount of property taxes and related prorations
- Amount of any reserves required to be deposited with the lender
- Costs for the closing and title insurance
- Document recording fees
Please contact us via phone at 402-504-3531 or via email at Info@ClarkWealthStrategies.com if you have any general questions or need a referral to a tax advisor.
*Note that this overview is not intended to be a substitute for specific tax advice and investors are advised to contact a qualified tax professional for assistance.