Do I still file Form 8824 if I had no gain?

The filing rule depends on the exchange, not on whether tax is due

The Form 8824 instructions state the trigger plainly: 'If during the current tax year you transferred property to another party in a like-kind exchange, you must file Form 8824 with your tax return for that year.' There is no threshold and no exception for exchanges that produce no taxable gain.

That makes sense once you see what the form does. Part I proves the timing, with the transfer date, the identification date and the receipt date that section 1031(a)(3) requires. Part III computes realized gain, the part taxed now, the part deferred and the basis you will depreciate and eventually sell from.

A fully deferred exchange is the normal case. Line 20, the recognized gain, is zero, and line 24 shows every dollar you deferred.

A loss in an exchange is deferred too, and it lives on in your basis

Section 1031(a)(1) says no gain or loss shall be recognized, and section 1031(c) adds that even when you receive cash or other property, 'no loss from the exchange shall be recognized.' You cannot exchange and deduct a loss in the same transaction.

On the form, the instructions say that 'if line 19 is a loss, enter it on line 24.' Because line 25 builds your new basis from your old adjusted basis plus what you paid, the loss is carried into the replacement, giving you a basis above its value and larger depreciation deductions or a smaller gain later.

If the loss is real and you would rather use it now, an exchange is the wrong tool. A plain sale recognizes it, and the trade-offs are in doing a 1031 when selling at a loss.

Worked example: a $100,000 loss carried into the replacement

Hypothetical, round numbers, no debt or costs; run your own numbers with your CPA. You sell a building for $700,000 with an adjusted basis of $800,000, and buy a $750,000 replacement, adding $50,000 of your own cash.

Line 15 is zero and line 16 is $750,000, so line 17 is $750,000. Line 18 is $800,000 of basis plus the $50,000 you paid, or $850,000. Line 19 is a $100,000 loss, line 20 is zero, and line 24 carries the $100,000 loss.

Line 25 is $850,000 plus zero, minus zero: $850,000 of basis in a property worth $750,000. Nothing is deducted this year, but the loss has not disappeared.

• Break-even variant: line 19 is zero, and line 25 still records the basis.
• Gain variant: a $200,000 gain with no cash received gives zero on line 20 and $200,000 on line 24.

Three lines to check even when the bottom line is zero

Line 21 can show ordinary income without any cash. For section 1245 real property you gave up, the instructions set line 21 at the smaller of the depreciation taken, up to the line 19 gain, or the line 20 gain plus the value of non-section 1245 like-kind property you received. Owners with cost-segregated components should check it; see section 1245 recapture in real estate.

Lines 25a to 25c split the line 25 basis among section 1250 property, section 1245 property and intangible real property in proportion to their values. That split drives depreciation on the replacement, covered in depreciating replacement property after a 1031.

If the property you gave up was once your main home and a section 121 exclusion covers the gain, the instructions say to write 'Section 121 exclusion' and the amount on line 19 without reducing line 19, then follow the special rules for lines 20 and 25.

What to do if the form was left off, and where trust interests fit

Some preparers skip the form when nothing is taxed. That leaves the IRS with a Form 1099-S for the full price and nothing on the return that explains it, which is how a full-price 1099-S becomes a matching letter. The repair is an amended return, explained in I forgot to file Form 8824.

Exchanges into Delaware statutory trust interests report the same way: each trust interest is replacement real property on line 2, and a fully deferred exchange shows zero on line 20. The multi-property mechanics are in Form 8824 with multiple properties or DSTs.