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 in 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
Special rules apply to exchanges between related parties. If the exchange is being structured to avoid related-party rules, it is not a like-kind exchange and should not be reported on Form 8824 but instead should be treated as a sale. (See 26 U.S.C. § 267(b) for the definition of a related party.)
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
- Enter the requested information:
- Description of Property Given Up
Description of Property Received - Generally only real property needs a description, including the address and type of property, but also describe property being disposed of that was part of a previously reported related party like-kind exchange.
- Property Given Up Originally Acquired - This is the acquisition date of the property given up.
- Property Transferred to Other Party - This is the date the property given up was transferred to the other party.
- Property Received was Identified - This is the date of the written identification of the like-kind property the taxpayer received. If the taxpayer received the property before the end of the 45-day written identification requirement period, enter the date they received the replacement property.
- Property Received from Other Party - This is the date the taxpayer received the like-kind property from the other party. The property must be received by the earlier of:
- When finished, select Ok.
- Description of Property Given Up
- If the parties to the exchange are related, select Part II - Related Party Questions. Answer Yes to the first question, provide information about the related party, and answer the remaining two Yes/No questions:
- Related Party Sold or Disposed of Property Received from You
- You Sold or Disposed of the Like-Kind Property You Received
- If the answer to both of the above questions is No and this is not the year of exchange, the remainder of the form does not need to be completed. Otherwise, complete the remainder of the form.
- If the answer to either of the above questions is Yes and there is an exception to the related party rules, select Disposition Exception and indicate which exception applies. If the third exception applies, Disposition Did Not have Tax Avoidance as its Principal Purpose, be sure to attach a statement to the return with an explanation.
- Send Income to
- For non-business property, select Schedule D
- For business property, select Form 4797
- For an installment sale, select Form 6252
Form 8824 is not supported in TaxSlayer ProWeb.
NOTE: This is a guide on entering like-kind exchanges into the TaxSlayer Pro program. This is not intended as tax advice. The Form 8824 instructions are an invaluable and authoritative resource for specific questions not covered above.