Form 8824 Preparation Support

Form 8824 is filed with the federal return for the tax year in which the exchange closed, reporting the relinquished and replacement property descriptions, exchange dates, realized gain, and any recognized gain from boot. The form itself is the tax preparer's responsibility, but the underlying facts need to be organized before that preparation can happen accurately.

The Dates the Form Requires

Form 8824 asks for the date the relinquished property was originally acquired, the date it was transferred in the exchange, the date the replacement property was identified, and the date it was received. Each of these dates should come from the actual closing statements and the identification letter's delivery confirmation rather than memory, since a mismatch between the reported identification date and the QI's records can raise questions during return preparation.

Coordinating With California Form 3840 for Out-of-State Replacement Property

When a Newport Beach investor exchanges into replacement property located outside California, the federal Form 8824 filing is paired with an annual California Form 3840, which tracks the deferred California-source gain until the replacement property is eventually sold outside of another exchange. Because both filings draw on the same sale price, purchase price, and gain figures, preparing them together, rather than treating the state filing as an afterthought, reduces the chance of inconsistent numbers across the two forms.

The figures shared between the two filings should match exactly, since a discrepancy between the sale price reported on the federal form and the same figure carried onto the California filing is one of the more common triggers for a follow-up inquiry. Reconciling both forms from the same closing statements before either is filed avoids that mismatch entirely.

Basis and Boot Figures the Preparer Needs

Beyond dates, the preparer needs the adjusted basis of the relinquished property, the fair market value and purchase price of the replacement property, any debt relief or new debt figures, and any cash boot received. For a multi-property exchange or one involving a DST allocation, these figures need to be broken out by property rather than reported in a single combined total, since basis is allocated across replacement assets individually.

When the replacement property is a ground-leased interest common to Newport Center and Fashion Island, the preparer also needs the allocation between the leasehold estate and any improvements, since a leasehold interest is depreciated and reported differently than a fee-simple building. This allocation should come from the closing statement and the ground lease itself rather than an estimate, particularly when the replacement pairs a leasehold parcel with a fee-simple backup property in the same exchange.

Form 8824 Support Package

• relinquished property acquisition date and adjusted basis
• START EXCHANGE REVIEW closing statement and transfer date
• identification letter with delivery date confirmation
• replacement purchase closing statement and receipt date
• debt relief, new debt, and any cash boot figures
• California Form 3840 draft figures where the replacement is out of state

Reviewing the Package Before It Reaches the Preparer

A short review pass, checking that every date matches across the QI file and the closing statements and that boot figures reconcile with the settlement documents, catches most errors before the preparer ever opens the file. This does not replace the CPA's own analysis, but it means the preparer's time goes toward judgment calls, such as basis allocation across a multi-asset exchange, rather than chasing down a missing closing statement.

Handling a Partial Exchange on the Form

Not every exchange defers gain in full. When an investor takes some cash out or replaces less debt than was paid off, a portion of the transaction is treated as a partial exchange, and Form 8824 needs to reflect the recognized gain on that portion alongside the deferred gain on the rest. Preparing a clean breakdown of the fully deferred piece versus the boot piece, with supporting settlement figures for each, prevents the preparer from having to reconstruct that split from a single lump-sum closing statement.

This distinction becomes more important on a Newport Beach exchange where high price points can mean even a modest percentage of boot translates into a meaningful recognized gain figure that deserves its own line of support in the file.

Common 1031 Exchange Questions

When is Form 8824 due?

It is filed with the federal income tax return for the year the relinquished property closed, following the normal filing deadline for that return, including any extension the investor takes.

Does every exchange also require California Form 3840?

No, Form 3840 is required specifically when California-sourced relinquished property is exchanged for replacement property located outside California, to track the deferred California gain going forward. An exchange where both properties are in California does not trigger this filing.

What happens if the identification date on Form 8824 does not match the QI's records?

A mismatch can raise questions about whether the identification was timely, which is why the date reported should come directly from the qualified intermediary's delivery confirmation rather than an investor's recollection.

Can basis be combined across multiple replacement properties on the form?

Generally no, basis needs to be allocated to each replacement property individually, particularly when the exchange involves a mix of direct property and a DST interest, so the preparer needs the figures broken out by asset.

What if some cash was taken out of the exchange?

That portion is generally treated as a partial exchange, with recognized gain reported on the boot received alongside the deferred gain on the rest of the transaction, so the figures should be broken out separately for the preparer.

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