Reporting a 1031 Exchange on Your Taxes: What Investors Need to Know
When it comes to tax season, investors who’ve completed a 1031 Exchange will need to navigate several key IRS forms to properly report the transaction. While the exchange itself allows for tax deferral, that doesn’t mean it can be left off your return. The IRS expects detailed reporting—and the accuracy of that reporting can impact your audit risk, future transactions, and overall tax position.
Here’s an overview of how to report a 1031 Exchange, including which forms apply, what each is used for, and how to handle failed exchanges or installment sale elements.
IRS Form 8824 — Reporting the Like-Kind Exchange
The primary form for reporting a 1031 Exchange is IRS Form 8824: Like-Kind Exchanges. Every investor who completes an exchange must file this form with their federal income tax return for the year the relinquished property was sold.
Form 8824 covers:
A description of the properties involved
Dates of sale and acquisition
The relationship (if any) between parties
Calculations for realized gain, recognized gain (if any), and basis in the replacement property
Even if the exchange results in no immediate tax due (i.e., full deferral), the IRS still requires this form. It’s your way of documenting the deferral and proving compliance with the exchange rules.
IRS Form 4797 — Reporting Any Recognized Gain
If your exchange involved taxable boot—such as cash or non-like-kind property received—you may need to report that recognized gain separately using IRS Form 4797: Sales of Business Property.
Form 4797 is used when:
A portion of the gain is taxable
You received boot that is not eligible for deferral
You're dealing with depreciation recapture (particularly on Section 1250 property)
The taxable portion is reported here, and then flows into your standard income tax return. It’s important to coordinate Form 4797 with Form 8824 so the IRS sees a consistent picture.
IRS Form 6252 — Installment Sale Treatment (If Applicable)
In some cases—especially if your exchange failed or was only partially completed—you may end up receiving the sale proceeds in installments. If so, you’ll likely need to file IRS Form 6252: Installment Sale Income.
This form reports the gain recognized as you receive payments over time, rather than all in one year. While this isn’t the typical route in a 1031 Exchange, it can apply in situations like:
Failed exchanges where funds were returned to you after the 45-day or 180-day period
Installment note structures used when the buyer of your relinquished property is paying over time
Form 6252 allows the tax liability to be spread across multiple years, depending on how and when payments are received.
Failed 1031 Exchanges: What to Report
If your 1031 Exchange was initiated but not completed, the transaction is considered a taxable sale. This usually happens when:
You fail to identify replacement property within the 45-day window
You don’t close on the replacement property within 180 days
You cancel the exchange before completion
In these cases, you must report the sale as you would any other disposition of investment property, generally using Form 4797 for business/investment property and Schedule D if the property was held for investment but not used in a trade or business. Form 8824 is still required to document the failed attempt.
Don’t Overlook the Federal Statute of Limitations
Taxpayers who complete a 1031 Exchange should be aware that the federal statute of limitations may be extended under certain conditions. Specifically, if your replacement property has deferred gain that hasn’t yet been recognized, and that gain becomes a focus of future IRS inquiry, the three-year standard audit window could be extended.
This is particularly relevant if your exchange involves complex elements like:
Related-party exchanges
Deferred exchanges with boot
Installment sale components
Multi-asset or mixed-use properties
Keeping thorough documentation and filing each required form accurately helps ensure compliance and minimize audit risk down the line.
Successfully completing a 1031 Exchange is only part of the equation. Properly reporting the transaction on your tax return is just as important to preserve your deferral benefits and stay in compliance with IRS rules.
To recap, here are the forms you may need:
Form 8824 – Always required for reporting the exchange
Form 4797 – For recognized gain or business-use property
Form 6252 – For installment sales
Schedule D – If the exchange involves investment property not used in a trade or business
Additional forms – Depending on your personal or entity tax situation
Before filing, consult your CPA or tax advisor to confirm which forms are necessary for your unique scenario. A 1031 Exchange can be a powerful tax strategy—but it needs to be documented the right way.
