Tax season brings a lot of questions, especially from investors who completed (or attempted) a 1031 exchange in the previous year. For individuals, April is the moment when the paperwork meets the IRS, and many people aren’t sure exactly what belongs on the return, what doesn’t, and where their CPA fits into the process.
This guide walks through the most common tax-season questions we hear every year about 1031 exchanges, including what gets reported, what expenses may be deductible, and how your QI and CPA work together.
Let’s clear up the confusion so you can file confidently.
A 1031 Exchange Doesn't "Eliminate" Reporting
One of the biggest misconceptions is that if your 1031 exchange is successful, it somehow disappears from your return.
Not true.
Even though you’re deferring the tax, the exchange must still be reported to the IRS using Form 8824.
Your CPA will report:
- the relinquished property
- the replacement property
- dates of transfer and acquisition
- adjusted basis
- deferred gain
- depreciation considerations
You still benefit from the tax deferral, but the IRS still gets the paperwork.
What You Do Report in a 1031 Exchange
Your CPA will need detailed information on:
Relinquished property sale information
- date sold
- sales price
- selling expenses
- debt payoff
Replacement property purchase information
- purchase price
- acquisition date
- loan amounts
- closing costs
Depreciation history
Especially if the relinquished property was held long-term.
Any "boot"
Cash boot or mortgage relief boot must be reported as taxable income.
Failed or partial exchanges
Any gain received is reported in the year the investor receives the funds.
What You Don't Report Directly in the Exchange
Certain things may still affect taxes, but aren’t part of the 1031 reporting itself.
Property tax prorations
These appear on closing statements but are not tracked as 1031 exchange gain/loss.
Operating income/expenses
These are part of rental activity, not the exchange.
Which Expenses are Deductible?
Investors often ask which expenses count as “exchange expenses,” especially because those reduce taxable boot.
Common allowable exchange expenses include:
- QI fees
- Recording fees
- Title insurance
- Legal document prep connected to the exchange
- Transfer taxes
- Inspection fees (depending on structure)
Expenses that are not typically considered exchange expenses:
- Property taxes
- Loan fees
- Appraisal for financing
- Insurance premiums
- Repairs
Your CPA is the final decision-maker here. Every situation is fact specific.
Understanding the CPA + QI Collaboration
The QI (Qualified Intermediary):
- handles exchange documentation
- holds proceeds
- tracks deadlines
- provides final exchange accounting
The CPA:
- calculates gain
- completes Form 8824
- handles depreciations and recapture
- reconciles tax-year considerations
A successful exchange requires both roles working together.
Common Questions Asked During Tax Season
Q: My client sold after October 16. Does the installment sale rule apply?
Possibly. If the exchange did not terminate prior to year-end, taxpayers and their advisors may consider awarding installment sale treatment to the disposition of the relinquished property.
Q: Is mortgage boot always taxable?
Yes, debt relief is treated as taxable gain unless offset by additional cash investment.
Q: Can multiple properties be reported in one exchange?
Yes. One Form 8824 can list multiple relinquished or replacement properties.
Q: What about exchanges that straddle tax years?
Your CPA will decide whether the exchange affects the current-year or next-year reporting.
Q: Does the 180-day period override the tax filing deadline?
No, unless the taxpayer files an extension.
A Simple Tax-Season Checklist for 1031 Participants
- Relinquished closing statement
- Replacement closing statement
- Depreciation schedules
- Entity documents (if applicable)
- QI’s final exchange accounting
- Records of improvements
- Copy of contract(s)
- Notes regarding any boot received
- Loan payoff statements
Share these with your CPA before April 15 to avoid delays.
1031 Exchanges & Tax Season Final Thoughts
A 1031 exchange can significantly reduce tax burden through deferral, but it still requires careful reporting. April is the time to make sure all the details line up: basis, depreciation, boot, and documentation.
If you or your clients have questions this tax season, our team is always happy to help bridge the gap between the QI documentation and the CPA reporting requirements.