should not check this box unless you can
See Regulations section 1.1031(d)-2
1245 property. See Regulations sections
establish that tax avoidance was not one
and the following example for figuring
1.1252-2(d) and 1.1254-2(d) and
of the principal purposes for the structure
amounts to enter on lines 15 and 18.
Temporary Regulations section
of your transaction. If one of the principal
16A.1255-2(c) for details. If the
Example. A owns an apartment
purposes for the structure of your
installment method applies to this
house with an FMV of $220,000, an
transaction was tax avoidance, do not
exchange:
adjusted basis of $100,000, and subject
report the transaction on Form 8824.
1. See section 453(f)(6) to determine
to a mortgage of $80,000. B owns an
Instead, you should report the disposition
the installment sale income taxable for
apartment house with an FMV of
of the property given up as if the
this year and report it on Form 6252.
$250,000, an adjusted basis of $175,000,
exchange had been a sale. See section
2. Enter on Form 6252, line 25 or 36,
and subject to a mortgage of $150,000.
1031(f)(4).
the section 1252, 1254, or 1255 recapture
A transfers his apartment house to B
amount you figured on Form 8824, line
Lines 12, 13, and 14. If you gave up
and receives in exchange B’s apartment
21. Do not enter more than the amount
other property in addition to the like-kind
house plus $40,000 cash. A assumes the
shown on Form 6252, line 24 or 35.
property, enter the fair market value
mortgage on the apartment house
3. Also enter this amount on Form
(FMV) and the adjusted basis of the other
received from B, and B assumes the
4797, line 15.
property on lines 12 and 13, respectively.
mortgage on the apartment house
4. If all the ordinary income is not
The gain or (loss) from this property is
received from A.
recaptured this year, report in future years
figured on line 14 and must be reported
A enters on line 15 only the $40,000
on Form 6252 the ordinary income up to
on your return. Report gain or (loss) as if
cash received from B. The $80,000 of
the taxable installment sale income, until
the exchange were a sale.
liabilities assumed by B is not included
it is all reported.
because it does not exceed the $150,000
Line 15. Include on line 15 the sum of:
•
of liabilities A assumed. A enters
Line 22. Report a gain from the
Any cash paid to you by the other
$170,000 on line 18 — the $100,000
exchange of property used in a trade or
party,
•
adjusted basis, plus the $70,000 excess
business (and other noncapital assets) on
The FMV of other (not like-kind)
of the liabilities A assumed over the
Form 4797, line 5 or line 16. Report a
property you received, if any, and
•
liabilities assumed by B ($150,000 -
gain from the exchange of capital assets
Net liabilities assumed by the other
$80,000).
according to the Schedule D instructions
party — the excess, if any, of liabilities
for your return. Be sure to use the date of
(including mortgages) assumed by the
B enters $30,000 on line 15 — the
the exchange as the date for reporting the
other party over the total of (a) any
excess of the $150,000 of liabilities
gain. If the installment method applies to
liabilities you assumed, (b) cash you paid
assumed by A over the total ($120,000) of
this exchange, see section 453(f)(6) to
to the other party, and (c) the FMV of the
the $80,000 of liabilities B assumed and
determine the installment sale income
other (not like-kind) property you gave up.
the $40,000 cash B paid. B enters on line
taxable for this year and report it on Form
18 only the adjusted basis of $175,000
Reduce the sum of the above amounts
6252.
because the total of the $80,000 of
(but not below zero) by any exchange
liabilities B assumed and the $40,000
Line 24. If line 19 is a loss, enter it on
expenses you incurred. See the example
cash B paid does not exceed the
line 24. Otherwise, subtract the amount
in the instructions for line 18 on this page.
$150,000 of liabilities assumed by A.
on line 23 from the amount on line 19 and
enter the result. For exchanges with
The following rules apply in
Line 21. If you disposed of section 1245,
related parties, see the instructions for
determining the amount of liability treated
1250, 1252, 1254, or 1255 property (see
line 7 on page 2.
as assumed.
the instructions for Part III of Form 4797),
•
A recourse liability (or portion thereof)
you may be required to recapture as
Line 25. The amount on line 25 is your
is treated as assumed by the party
ordinary income part or all of the realized
basis in the like-kind property you
receiving the property if that party has
gain (line 19). Figure the amount to enter
received in the exchange. Your basis in
agreed to and is expected to satisfy the
on line 21 as follows:
other property received in the exchange,
liability (or portion thereof). It does not
Section 1245 property. Enter the
if any, is its FMV.
matter whether the party transferring the
smaller of:
property has been relieved of the liability.
Section 1043
1. The total adjustments for
•
A nonrecourse liability generally is
deductions (whether for the same or other
Conflict-of-Interest Sales
treated as assumed by the party receiving
property) allowed or allowable to you or
the property subject to the liability.
(Part IV)
any other person for depreciation or
However, if an owner of other assets
amortization (up to the amount of gain
If you sell property at a gain according to
subject to the same liability agrees with
shown on line 19), or
a certificate of divestiture issued by the
the party receiving the property to, and is
2. The gain shown on line 20, if any,
Office of Government Ethics (OGE) or the
expected to, satisfy part or all of the
plus the FMV of non-section 1245
Judicial Conference of the United States
liability, the amount treated as assumed is
like-kind property received.
(or its designee) and purchase
reduced by the smaller of (a) the amount
replacement property (permitted
of the liability that the owner of the other
Section 1250 property. Enter the
property), you can elect to defer part or all
assets has agreed to and is expected to
smaller of:
of the realized gain. You must recognize
satisfy or (b) the FMV of those other
1. The gain you would have had to
gain on the sale only to the extent that the
assets.
report as ordinary income because of
amount realized on the sale is more than
additional depreciation if you had sold the
Line 18. Include on line 18 the sum of:
the cost of replacement property
•
property (see the Form 4797 instructions
The adjusted basis of the like-kind
purchased within 60 days after the sale.
for line 26), or
property you gave up,
(You also must recognize any ordinary
•
2. The larger of:
Exchange expenses, if any (except for
income recapture.) Permitted property is
expenses used to reduce the amount
a. The gain shown on line 20, if any,
any obligation of the United States or any
reported on line 15), and
or
diversified investment fund approved by
•
Net amount paid to the other
b. The excess, if any, of the gain in
the OGE.
party — the excess, if any, of the total of
item (1) above over the FMV of the
(a) any liabilities you assumed, (b) cash
If the property you sold was stock
section 1250 property received.
TIP
you paid to the other party, and (c) the
you acquired by exercising a
FMV of the other (not like-kind) property
Section 1252, 1254, and 1255
statutory stock option, you may be
you gave up over any liabilities assumed
property. The rules for these types of
treated as meeting the holding periods
by the other party.
property are similar to those for section
that apply to such stock, regardless of
-3-
2009 Instructions for Form 8824