A like-kind exchange, also called a 1031 exchange, happens when you exchange real property used for business or investment for other qualifying real property.
If the exchange meets the requirements of Section 1031, you generally don’t recognize a gain or loss at the time of the exchange. Instead, the gain is usually deferred. Your basis in the replacement property is adjusted, so some or all of that gain may become taxable when you later sell the replacement property.
What property qualifies for a 1031 exchange?
For exchanges completed after December 31, 2017, Section 1031 generally applies only to real property held for:
- Use in a trade or business
- Investment purposes
Real property held mainly for sale, such as homes held by a real estate developer as inventory, generally doesn’t qualify. Personal property, equipment, vehicles, artwork, collectibles, patents, and most other intangible property also don’t qualify under the current rules.
“Like-kind” is broader than it sounds. The replacement property doesn’t have to be identical to the property you gave up. For example, improved real estate may generally be exchanged for unimproved real estate, or an apartment building may be exchanged for another type of qualifying investment property.
However, real property located in the United States generally isn’t like-kind to real property located outside the United States.
What happens if I receive cash or other property?
If you receive cash or property that isn’t like-kind as part of the exchange, that amount is often called boot.
You may have to recognize gain up to the value of the cash or other non-like-kind property you received. However, you can’t recognize a loss in a qualifying like-kind exchange.
Receiving boot doesn’t automatically disqualify the entire exchange. It may simply make part of the gain taxable.
What form reports a like-kind exchange?
Use Form 8824, Like-Kind Exchanges, to report each qualifying exchange of business or investment real property. Parts I through III report the exchange, related-party information when applicable, realized gain, recognized gain, and the basis of the replacement property.
You’ll usually need the following information:
- A description of the property you transferred
- A description of the replacement property
- The date you originally acquired the transferred property
- The date you transferred it
- The date you identified the replacement property
- The date you received the replacement property
- The adjusted basis of the property you transferred
- The fair market value of both properties
- Cash or other property you paid or received
- Exchange expenses
- Information about any related party involved
Program Entry
- Select Federal from the left-side menu.
- Select Income under the Federal heading.
- Scroll to Less Common Income, then select Begin.
- Find Like-Kind Exchanges - Form 8824, then select Begin.
- Enter the requested property, date, value, basis, and exchange information.
- Complete a separate Form 8824 for each exchange you need to report.
- The form also asks whether the exchange was made directly or indirectly with a related party. Special rules may apply when you or the related party disposes of the exchanged property within two years.
What are the identification and replacement deadlines?
A deferred 1031 exchange generally involves a qualified intermediary rather than a direct swap between property owners.
The replacement property must generally be identified in writing within 45 days after you transfer the original property. The replacement property must generally be received by the earlier of:
- 180 days after the original property is transferred, or
- The due date of the tax return for the year of the transfer, including extensions
The 45-day and 180-day periods run at the same time. They aren’t added together. The 45-day identification requirement is reported on Form 8824.
Can I use a 1031 exchange for my home?
A home used only as your personal residence generally doesn’t qualify because it isn’t held for business or investment.
A property that was used partly as a home and partly for business or investment may involve both Section 1031 and the home-sale exclusion under Section 121. The latest final instructions include electronic filing guidance for reporting a Section 121 exclusion on Line 19 of Form 8824.
Vacation homes and properties converted between personal and rental use can be especially complicated. The property’s actual use before and after the exchange matters.
Does a 1031 exchange eliminate the tax?
Usually, no. A qualifying exchange generally defers the gain.
The deferred gain affects the basis of your replacement property. When you later sell that property in a taxable sale, the deferred gain may be recognized unless another qualifying exchange or tax rule applies.
Depreciation, prior property use, liabilities transferred or assumed, exchange expenses, and cash received can all affect the final calculation. Keep your closing statements, depreciation schedules, intermediary documents, appraisals, and property records.
2026 tax year note
As of September 3, 2026, the IRS has published a draft 2026 Form 8824. The draft continues to state that only real property should be entered as the exchanged and replacement property on Lines 1 and 2. Draft forms can’t be filed and may change before the final 2026 form is released.
The latest final instructions also include updated electronic filing guidance and provisions concerning certain sales or exchanges of qualified farmland. That separate farmland treatment isn’t the same as a Section 1031 exchange, so taxpayers who may qualify should review the applicable filing rules carefully.
For detailed reporting rules, please see: