Specific Instructions

Lines 1 and 2.   For real property, enter the address and type of property. For personal property, enter a short description. For property located outside the United States, include the country.

Line 5.   Enter on line 5 the date of the written identification of the like-kind property you received in a deferred exchange. To comply with the 45-day written identification requirement, the following conditions must be met.
  1. The like-kind property you receive in a deferred exchange is designated in writing as replacement property either in a document you signed or in a written agreement signed by all parties to the exchange.

  2. The document or agreement describes the replacement property in a clear and recognizable manner. Real property should be described using a legal description, street address, or distinguishable name (for example, “Mayfair Apartment Building”).

  3. No later than 45 days after the date you transferred the property you gave up:

    1. You send, fax, or hand deliver the document you signed to the person required to transfer the replacement property to you (including a disqualified person) or to another person involved in the exchange (other than a disqualified person), or

    2. All parties to the exchange sign the written agreement designating the replacement property.

  Generally, a disqualified person is either your agent at the time of the transaction or a person related to you. For more details, see Regulations section 1.1031(k)-1(k).

  

Note.

If you received the replacement property before the end of the 45-day period, you automatically are treated as having met the 45-day written identification requirement. In this case, enter on line 5 the date you received the replacement property.

Line 6.   Enter on line 6 the date you received the like-kind property from the other party.

  The property must be received by the earlier of the following dates.
  • The 180th day after the date you transferred the property given up in the exchange.

  • The due date (including extensions) of your tax return for the year in which you transferred the property given up.

Line 7.   Special rules apply to like-kind exchanges made with related parties, either directly or indirectly. A related party includes your spouse, child, grandchild, parent, grandparent, brother, sister, or a related corporation, S corporation, partnership, trust, or estate. See section 1031(f).

  An exchange made indirectly with a related party includes:
  • An exchange made with a related party through an intermediary (such as a qualified intermediary or an exchange accommodation titleholder, as defined in Pub. 544), or

  • An exchange made by a disregarded entity (such as a single member limited liability company) if you or a related party owned that entity.

  If you or the related party (either directly or indirectly) dispose of property received in an exchange before the date that is 2 years after the last transfer which was part of the exchange, the deferred gain or (loss) from line 24 must be reported on your return for the year of disposition (unless an exception on line 11 applies).

  If you are filing this form for 1 of the 2 years following the year of the exchange, complete Parts I and II. If both lines 9 and 10 are “No, stop.

  If either line 9 or line 10 is “Yes,” and an exception on line 11 applies, check the applicable box on line 11, attach any required explanation, and stop. If no line 11 exceptions apply, complete Part III. Report the deferred gain or (loss) from line 24 on this year's tax return as if the exchange had been a sale.

  An exchange structured to avoid the related party rules is not a like-kind exchange. Do not report it on Form 8824. Instead, you should report the disposition of the property given up as if the exchange had been a sale. See section 1031(f)(4). Such an exchange includes the transfer of property you gave up to a qualified intermediary in exchange for property you received that was formerly owned by a related party if the related party received cash or other (not like-kind) property for the property you received, and you used the qualified intermediary to avoid the application of the related party rules. See Rev. Rul. 2002-83 for more details. You can find Rev. Rul. 2002-83 on page 927 of Internal Revenue Bulletin 2002-49 at www.irs.gov/pub/irs-irbs/irb02-49.pdf.

Line 11c.   If you believe that you can establish to the satisfaction of the IRS that tax avoidance was not a principal purpose of both the exchange and the disposition, attach an explanation. Generally, tax avoidance will not be seen as a principal purpose in the case of:
  • A disposition of property in a nonrecognition transaction,

  • An exchange in which the related parties derive no tax advantage from the shifting of basis between the exchanged properties, or

  • An exchange of undivided interests in different properties that results in each related party holding either the entire interest in a single property or a larger undivided interest in any of the properties.

  
If, after the exchange, you own replacement property that a related party sold into the exchange through an unrelated party such as a qualified intermediary, you should not check this box unless you can establish that tax avoidance was not one of the principal purposes for the structure of your transaction. If one of the principal purposes for the structure of your transaction was tax avoidance, do not report the transaction on Form 8824. Instead, you should report the disposition of the property given up as if the exchange had been a sale.

Lines 12, 13, and 14.   If you gave up other property in addition to the like-kind property, enter the fair market value (FMV) and the adjusted basis of the other property on lines 12 and 13, respectively. The gain or (loss) from this property is figured on line 14 and must be reported on your return. Report gain or (loss) as if the exchange were a sale.

Line 15.   Include on line 15 the sum of:
  • Any cash paid to you by the other party,

  • The FMV of other (not like-kind) property you received, if any, and

  • Net liabilities assumed by the other party—the excess, if any, of liabilities (including mortgages) assumed by the other party over the total of (a) any liabilities you assumed, (b) cash you paid to the other party, and (c) the FMV of the other (not like-kind) property you gave up.

  See the example in the instructions for line 18.

  Reduce the sum of the above amounts (but not below zero) by any exchange expenses you incurred.

  The following rules apply in determining the amount of liability treated as assumed.
  • A recourse liability (or portion thereof) is treated as assumed by the party receiving the property if that party has agreed to and is expected to satisfy the liability (or portion thereof). It does not matter whether the party transferring the property has been relieved of the liability.

  • A nonrecourse liability generally is treated as assumed by the party receiving the property subject to the liability. However, if an owner of other assets subject to the same liability agrees with the party receiving the property to, and is expected to, satisfy part or all of the liability, the amount treated as assumed is reduced by the smaller of (a) the amount of the liability that the owner of the other assets has agreed to and is expected to satisfy or (b) the FMV of those other assets.

Line 18.   Include on line 18 the sum of:
  • The adjusted basis of the like-kind property you gave up,

  • Exchange expenses, if any (except for expenses used to reduce the amount reported on line 15), and

  • Net amount paid to the other party—the excess, if any, of the total of (a) any liabilities you assumed, (b) cash you paid to the other party, and (c) the FMV of the other (not like-kind) property you gave up over any liabilities assumed by the other party.

  See Regulations section 1.1031(d)-2 and the following example for figuring amounts to enter on lines 15 and 18.

Example.

A owns an apartment house with an FMV of $220,000, an adjusted basis of $100,000, and subject to a mortgage of $80,000. B owns an apartment house with an FMV of $250,000, an adjusted basis of $175,000, and subject to a mortgage of $150,000.

A transfers his apartment house to B and receives in exchange B's apartment house plus $40,000 cash. A assumes the mortgage on the apartment house received from B, and B assumes the mortgage on the apartment house received from A.

A enters on line 15 only the $40,000 cash received from B. The $80,000 of liabilities assumed by B is not included because it does not exceed the $150,000 of liabilities A assumed. A enters $170,000 on line 18—the $100,000 adjusted basis, plus the $70,000 excess of the liabilities A assumed over the liabilities assumed by B ($150,000 - $80,000).

B enters $30,000 on line 15—the excess of the $150,000 of liabilities assumed by A over the total ($120,000) of the $80,000 of liabilities B assumed and the $40,000 cash B paid. B enters on line 18 only the adjusted basis of $175,000 because the total of the $80,000 of liabilities B assumed and the $40,000 cash B paid does not exceed the $150,000 of liabilities assumed by A.

Line 21.   If you disposed of section 1245, 1250, 1252, 1254, or 1255 property (see the instructions for Part III of Form 4797), you may be required to recapture as ordinary income part or all of the realized gain (line 19). Figure the amount to enter on line 21 as follows:

Section 1245 property.

Enter the smaller of:

  1. The total adjustments for deductions (whether for the same or other property) allowed or allowable to you or any other person for depreciation or amortization (up to the amount of gain shown on line 19), or

  2. The gain shown on line 20, if any, plus the FMV of non-section 1245 like-kind property received.

Section 1250 property.

Enter the smaller of:

  1. The gain you would have had to report as ordinary income because of additional depreciation if you had sold the property (see the Form 4797 instructions for line 26), or

  2. The larger of:

    1. The gain shown on line 20, if any, or

    2. The excess, if any, of the gain in item (1) above over the FMV of the section 1250 property received.

Section 1252, 1254, and 1255 property.

The rules for these types of property are similar to those for section 1245 property. See Regulations sections 1.1252-2(d) and 1.1254-2(d) and Temporary Regulations section 16A.1255-2(c) for details. If the installment method applies to this exchange:

  1. See section 453(f)(6) to determine the installment sale income taxable for this year and report it on Form 6252.

  2. Enter on Form 6252, line 25 or 36, the section 1252, 1254, or 1255 recapture amount you figured on Form 8824, line 21. Do not enter more than the amount shown on Form 6252, line 24 or 35.

  3. Also enter this amount on Form 4797, line 15.

  4. If all the ordinary income is not recaptured this year, report in future years on Form 6252 the ordinary income up to the taxable installment sale income, until it is all reported.

Line 22.   Report a gain from the exchange of property used in a trade or business (and other noncapital assets) on Form 4797, line 5 or line 16. Report a gain from the exchange of capital assets according to the Schedule D instructions for your return. Be sure to use the date of the exchange as the date for reporting the gain. If the installment method applies to this exchange, see section 453(f)(6) to determine the installment sale income taxable for this year and report it on Form 6252.

Line 24.   If line 19 is a loss, enter it on line 24. Otherwise, subtract the amount on line 23 from the amount on line 19 and enter the result. For exchanges with related parties, see the instructions for line 7.

Line 25.   The amount on line 25 is your basis in the like-kind property you received in the exchange. Your basis in other property received in the exchange, if any, is its FMV.

Section 1043 Conflict-of-Interest Sales (Part IV)

If you sell property at a gain according to a certificate of divestiture issued by the Office of Government Ethics (OGE) or the Judicial Conference of the United States (or its designee) and purchase replacement property (permitted property), you can elect to defer part or all of the realized gain. You must recognize gain on the sale only to the extent that the amount realized on the sale is more than the cost of replacement property purchased within 60 days after the sale. (You also must recognize any ordinary income recapture.) Permitted property is any obligation of the United States or any diversified investment fund approved by the OGE.

If the property you sold was stock you acquired by exercising a statutory stock option, you may be treated as meeting the holding periods that apply to such stock, regardless of how long you actually held the stock. This may benefit you if you do not defer your entire gain, because it may allow you to treat the gain as a capital gain instead of ordinary income. For details, see section 421(d) or Pub. 525, Taxable and Nontaxable Income.

Complete Part IV of Form 8824 only if the cost of the replacement property is more than the basis of the divested property and you elect to defer the gain. Otherwise, report the sale on your Schedule D or Form 4797, whichever applies.

Your basis in the replacement property is reduced by the amount of the deferred gain. If you made more than one purchase of replacement property, reduce your basis in the replacement property in the order you acquired it.

Line 30.   Enter the amount you received from the sale of the divested property, minus any selling expenses.

Line 35.   Follow these steps to determine the amount to enter.
  1. Use Part III of Form 4797 as a worksheet to figure ordinary income under the recapture rules.

  2. Enter on Form 8824, line 35, the amount from Form 4797, line 31. Do not attach the Form 4797 used as a worksheet to your return.

  3. Report the amount from line 35 on Form 4797, line 10, column (g). In column (a), write “From Form 8824, line 35.” Do not complete columns (b) through (f).

Line 36.   If you sold a capital asset, enter any capital gain from line 36 on your Schedule D. If you sold property used in a trade or business (or any other asset for which the gain is treated as ordinary income), report the gain on Form 4797, line 2 or line 10, column (g). In column (a), write “From Form 8824, line 36.” Do not complete columns (b) through (f).


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