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 408-392-8822 or via email at info@FirstGuardianGroup.com if you have any general questions or need a referral to a tax advisor. You can also schedule a one-on-one consultation with Paul here.
Please 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.
Disclosure: DSTs, like all real estate, have risks, including illiquidity, potential for loss of property value, costs and expenses that could offset the benefits associated with tax deferral, and reduction or elimination of monthly cash flow.
Disclaimer: There is no guarantee that any strategy will be successful or achieve investment objectives. All real estate investments have the potential to lose value during the life of the investments. This material does not constitute an offer to sell nor a solicitation of an offer to buy any security. Such offers can be made only by the confidential Private Placement Memorandum (the “Memorandum”). Please be aware that this material cannot and does not replace the Memorandum and is qualified in its entirety by the Memorandum.
This material is not intended as tax or legal advice so please do speak with your attorney and CPA prior to considering an investment. This material contains information that has been obtained from sources believed to be reliable. However, FGG1031, First Guardian Group, LightPath Capital, Inc., and their representatives do not guarantee the accuracy and validity of the information herein. Investors should perform their own investigations before considering any investment. There are material risks associated with investing in real estate, Delaware Statutory Trust (DST) and 1031 Exchange properties. These include, but are not limited to, tenant vacancies, declining market values, potential loss of entire investment principal.
Past performance is not a guarantee of future results: potential cash flow, potential returns, and potential appreciation are not guaranteed in any way and adverse tax consequences can take effect. The income stream and depreciation schedule for any investment property may affect the property owner’s income bracket and/or tax status. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities. All financed real estate investments have a potential for foreclosure. Delaware Statutory Trust (DST) investments are commonly offered through private placement offerings and are illiquid securities. There is no secondary market for these investments. Like any investment in real estate, if a property unexpectedly loses tenants or sustains substantial damage, there is potential for suspension of cash flow distributions. Costs associated with the transaction may impact investors’ returns and may outweigh the tax benefits.
IRC Section 1031, IRC Section 1033, and IRC Section 721 are complex tax codes; therefore, you should consult your tax and legal professional for details regarding your situation.