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Page 3 of 4 2011 Instructions for Form 8824

9:25 - 12-SEP-2011

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An exchange in which the related

Line 18. Include on line 18 the sum of:

additional depreciation if you had sold the

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parties derive no tax advantage from the

The adjusted basis of the like-kind

property (see the Form 4797 instructions

shifting of basis between the exchanged

property you gave up,

for line 26), or

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properties, or

Exchange expenses, if any (except for

2. The larger of:

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An exchange of undivided interests in

expenses used to reduce the amount

a. The gain shown on line 20, if any,

different properties that results in each

reported on line 15), and

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related party holding either the entire

Net amount paid to the other

b. The excess, if any, of the gain in

party — the excess, if any, of the total of

interest in a single property or a larger

item (1) above over the FMV of the

undivided interest in any of the properties.

(a) any liabilities you assumed, (b) cash

section 1250 property received.

you paid to the other party, and (c) the

If, after the exchange, you own

Section 1252, 1254, and 1255

FMV of the other (not like-kind) property

replacement property that a

property. The rules for these types of

you gave up over any liabilities assumed

related party sold into the

property are similar to those for section

CAUTION

by the other party.

exchange through an unrelated party

1245 property. See Regulations sections

See Regulations section 1.1031(d)-2

such as a qualified intermediary, you

1.1252-2(d) and 1.1254-2(d) and

and the following example for figuring

should not check this box unless you can

Temporary Regulations section

amounts to enter on lines 15 and 18.

establish that tax avoidance was not one

16A.1255-2(c) for details. If the

Example. A owns an apartment

of the principal purposes for the structure

installment method applies to this

of your transaction. If one of the principal

house with an FMV of $220,000, an

exchange:

adjusted basis of $100,000, and subject

purposes for the structure of your

1. See section 453(f)(6) to determine

transaction was tax avoidance, do not

to a mortgage of $80,000. B owns an

the installment sale income taxable for

apartment house with an FMV of

report the transaction on Form 8824.

this year and report it on Form 6252.

$250,000, an adjusted basis of $175,000,

Instead, you should report the disposition

2. Enter on Form 6252, line 25 or 36,

of the property given up as if the

and subject to a mortgage of $150,000.

the section 1252, 1254, or 1255 recapture

exchange had been a sale.

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.

mortgage on the apartment house

property, enter the fair market value

3. Also enter this amount on Form

received from B, and B assumes the

(FMV) and the adjusted basis of the other

4797, line 15.

property on lines 12 and 13, respectively.

mortgage on the apartment house

4. If all the ordinary income is not

received from A.

The gain or (loss) from this property is

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

the taxable installment sale income, until

cash received from B. The $80,000 of

the exchange were a sale.

it is all reported.

liabilities assumed by B is not included

Line 15. Include on line 15 the sum of:

because it does not exceed the $150,000

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Line 22. Report a gain from the

of liabilities A assumed. A enters

Any cash paid to you by the other

exchange of property used in a trade or

$170,000 on line 18 — the $100,000

party,

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business (and other noncapital assets) on

The FMV of other (not like-kind)

adjusted basis, plus the $70,000 excess

Form 4797, line 5 or line 16. Report a

of the liabilities A assumed over the

property you received, if any, and

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gain from the exchange of capital assets

liabilities assumed by B ($150,000 -

Net liabilities assumed by the other

according to the Schedule D instructions

$80,000).

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

See the example in the instructions for

6252.

because the total of the $80,000 of

line 18.

Line 24. If line 19 is a loss, enter it on

liabilities B assumed and the $40,000

Reduce the sum of the above amounts

line 24. Otherwise, subtract the amount

cash B paid does not exceed the

(but not below zero) by any exchange

on line 23 from the amount on line 19 and

$150,000 of liabilities assumed by A.

expenses you incurred.

enter the result. For exchanges with

Line 21. If you disposed of section 1245,

The following rules apply in

related parties, see the instructions for

1250, 1252, 1254, or 1255 property (see

determining the amount of liability treated

line 7.

the instructions for Part III of Form 4797),

as assumed.

Line 25. The amount on line 25 is your

you may be required to recapture as

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A recourse liability (or portion thereof)

basis in the like-kind property you

ordinary income part or all of the realized

is treated as assumed by the party

received in the exchange. Your basis in

gain (line 19). Figure the amount to enter

receiving the property if that party has

other property received in the exchange,

on line 21 as follows:

agreed to and is expected to satisfy the

if any, is its FMV.

Section 1245 property. Enter the

liability (or portion thereof). It does not

smaller of:

matter whether the party transferring the

Section 1043

property has been relieved of the liability.

1. The total adjustments for

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Conflict-of-Interest Sales

A nonrecourse liability generally is

deductions (whether for the same or other

treated as assumed by the party receiving

property) allowed or allowable to you or

(Part IV)

the property subject to the liability.

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

a certificate of divestiture issued by the

shown on line 19), or

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

(or its designee) and purchase

like-kind property received.

reduced by the smaller of (a) the amount

replacement property (permitted

Section 1250 property. Enter the

of the liability that the owner of the other

property), you can elect to defer part or all

smaller of:

assets has agreed to and is expected to

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

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2011 Instructions for Form 8824

Instructions For Form 8824 - Like-Kind Exchanges (And Section 1043 Conflict-Of-Interest Sales) - 2011 Page 3

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