The exchange of real property for the same kind of real property is the most common type of nontaxable exchange. To be a like-kind exchange, the real property traded and the real property received must be both a qualifying property and like-kind property. Properties may differ quality and whether they are improved or unimproved and still be considered like kind, as long as they are similar in nature.
Additional requirements apply to a deferred exchange in which the property received is received after the transfer of the property given up. Thus, Form 8824 queries four dates:
- The date the like-kind property that was given up was acquired;
- The date the like-kind property was transferred to the other party;
- For a deferred exchange, the date the taxpayer received written identification of the like-kind property being received;
- For a deferred exchange, the date the taxpayer actually received the like-kind property. The property must be received by the earlier of
- The 180th day after the date the like-kind property was transferred to the other party;
- The due date (including extensions) of the tax return for the year in which the like-kind property was transferred.
A gain may be recognized in an exchange that includes the receipt of money or unlike property, or the assumption of liabilities.
You must report an exchange to the IRS on Form 8824 and file it with the tax return for the year in which the exchange occurred. If you do not specifically follow the rules for like-kind exchanges, you may be held liable for taxes, penalties, and interest on your transactions. Form 8824 asks for:
- Descriptions of the properties exchanged
- Gain or loss on sale of other (non-like-kind) property given up
- Dates that properties were identified and transferred
- Cash received or paid; liabilities relieved or assumed
- Any relationship between the parties to the exchange
- Adjusted basis of like-kind property given up; realized gain
- Value of the like-kind and other property received
To enter a like-kind exchange in TaxSlayer Pro, from the main menu of the tax return (Form 1040) select:
- Other Gains/Loss (4797/8824)
- Form 8824 - Like-Kind Exchanges
NOTE: This is a guide on entering like-kind exchanges into the TaxSlayer Pro program. This is not intended as tax advice.