How and when do taxpayers report a 1031 Deferred Exchange?
A taxpayer must report an exchange on the tax return for the year in which the exchange begins. The exchange is reported on Form 8824, “Like-Kind Exchanges”. This form requests dates of exchange transactions, the date properties were “identified”, and financial information obtained from the closing settlement statement. For the sale of depreciable rental or business property, the taxpayer also will need Form 4797, “Sale of Business Property”. For the sale of non-depreciable investment property, the taxpayer will need Form 1041 Schedule D, “Capital Gains and Losses”. The basic rule is that closing costs reduce realized gain on the Relinquished Property, reduce boot received, and are added to the basis of the Replacement Property. Remember, if the taxpayer sells the Relinquished Property after October 18 of a particular year, he has less than 180 days within which to complete the exchange. The actual deadline is the date the tax return is due, typically April 15 of the year following the
