Category: Taxes Made Simple

🧾 Understanding IRS Form 8824 – Like-Kind Exchanges

🧠 Overview

If you sold one property and used the money to buy another, and you didn’t pay tax right away, the IRS likely expects you to file Form 8824. This form reports what’s called a like-kind exchange—a tax-deferring move real estate investors use under Section 1031 of the tax code.

🏡 What’s a Like-Kind Exchange?

Think of a like-kind exchange as a property swap. If you sell a rental or investment property and use the profits to buy a similar one, you might not owe taxes immediately.

✅ Example:
You sell a duplex in Phoenix and use the funds to buy a fourplex in Tempe. You didn’t pocket the money—you reinvested it. That’s a like-kind exchange.

📄 What Is IRS Form 8824?

IRS Form 8824 tells the government you did a like-kind exchange and chose to defer the gain (meaning you didn’t pay tax on your profit—yet). The form walks through:

• 🧾 Property you gave up
• 🏠 Property you received
• 💰 Any cash ("boot") or mortgages involved
• 🧮 The gain or loss you would’ve had—if you didn’t defer it

🧩 When Do You File IRS Form 8824?

You must file Form 8824 with your tax return for the year you sold the first property, even if you haven’t yet bought the new one. You’ll also need to meet timing rules:

• 45 days to identify the replacement property
• 180 days to complete the purchase

💸 Why It Matters for Your Taxes

Form 8824 helps you:

• ✅ Defer capital gains taxes
• ✅ Track how much gain is left to be taxed in the future
• ✅ Maintain a clear audit trail

If you skip filing it, the IRS may treat your exchange as a taxable sale—and hit you with penalties or back taxes.

🗂️ How to Keep Your Exchange Audit-Ready with Zoho Expense

To stay IRS-compliant, make sure you use Zoho Expense to:

• 📂 Create a category for “1031 Exchange Costs”
• 📎 Upload escrow and closing statements
• 🔎 Track exchange-related fees and any boot received
• 🗃️ Reconcile all entries in Zoho Books and store backups in Zoho WorkDrive

📌 What About State Reporting?

In California, for example, the FTB (Franchise Tax Board) also wants to know about your 1031 exchange. They’ll look for Form FTB 3840, which goes with Form 8824. If you miss it, they may send a notice.

🧾 Related Article: FTB 3840 Missing Form – What to Do If You Received a Like-Kind Exchange Notice

🚫 Common Mistakes to Avoid

• ❌ Not filing Form 8824 with your return
• ❌ Missing the 45-day/180-day rule
• ❌ Thinking “like-kind” means “same size or value” (it doesn’t—just similar type)
• ❌ Forgetting to notify your state if required

🔁 Want to Do Another Exchange?

You can do multiple exchanges over time. Each time you defer taxes, your basis carries forward—which means the IRS tracks how much you haven’t paid yet. When you finally sell for cash (no exchange), that’s when you pay tax on the gain.

✅ Summary

Form 8824 is your official paperwork for deferring taxes using a like-kind exchange. It’s not optional, and missing it can cost you thousands in penalties. Always file it with your tax return, and use tools like Zoho Expense to track all closing documents, exchange fees, and asset history. Your future tax advisor—and the IRS—will thank you.