Form 8824 for a DST 1031 Exchange: Line-by-Line Worked Example

Which Form 8824 to use, and what changed

The file at irs.gov/pub/irs-pdf/f8824.pdf on November 13, 2026 is the 2026 form (footer “Created 10/30/26”), with instructions printed November 9, 2026. The file for 2025 (“Created 8/19/25”) sits in the IRS prior-year folder. You file the form for the year you transferred the property you gave up: the instructions say “you must file Form 8824 with your tax return for that year.” A June 2026 sale is therefore reported on the 2026 form in 2027; a 2025 sale on the 2025 form.

Source: IRS Form 8824 (2025) and (2026) and their instructions, compared line by line by us. None of the differences changes the arithmetic of lines 15 to 25. They do change where a recapture amount goes, so check the line number on the form you are actually filing.

The DST whose terms we borrowed

Rev. Rul. 2004-86 is the reason a DST interest can be replacement property at all. It says the trust it describes is an investment trust classified as a trust, that its owners “are each considered to own an undivided fractional interest” in the property for federal income tax purposes, and holds that a taxpayer “may exchange real property for an interest in the Delaware statutory trust described above without recognition of gain or loss” if the other section 1031 requirements are met. The ruling covers a trust with the powers it lists; whether a given DST fits is for its sponsor's counsel and yours, not for this page.

For real numbers we used one DST's Form D, KB Golden Valley, DST (CIK 0002014035), the only Form D it has filed on EDGAR as of November 13, 2026. We chose it because the form states the equity portion, which most DST Form Ds do not (our Kingsbarn census lists the others). We are not saying this offering is open today; it is only the source of the per-interest terms.

The Form D does not give a loan amount or a loan-to-value ratio. We call the non-equity share a debt share because the form describes a financing fee, but that is our assumption, and the private placement memorandum is where the real loan sits. The instructions do not mention DSTs; they apply their liability rules to “liabilities (including mortgages)” in general. Our reading is that a buyer treated as owning a fraction of the property takes on that fraction of its debt, which is how the example below treats it.

The seller in our example

All of this is hypothetical except the DST terms.

Plain sale arithmetic gives the gain you should end up with: $1,500,000 less $90,000 of costs less $480,000 of basis is $930,000 (our arithmetic). Line 19 must tie to that figure whenever the replacement is bought with the proceeds. Day 45 after June 10, 2026 is July 25, 2026, a Saturday, and day 180 is December 7, 2026 (our arithmetic from Treas. Reg. 1.1031(k)-1(b)(2), which ends the identification period “at midnight on the 45th day thereafter”); the April 15, 2027 return due date comes later, so the 180 days govern. Our timeline page shows when the return date cuts the 180 days short.

Part I, line by line

Part II, the related-party lines

Part II (lines 8 to 11) is skipped when line 7 is “No.” When it applies, it asks for the related party's name and relationship, then two questions about the next two years: did the related party dispose of what it got from you (line 9), and did you dispose of what you received (line 10). A “Yes” to either means the deferred gain from line 24 is reported on that year's return unless one of three exceptions applies: death of either party (11a), an involuntary conversion whose threat came after the exchange (11b), or an explanation attached to the return showing that neither the exchange nor the disposition had tax avoidance as one of its principal purposes (11c).

The instructions list the relatives and entities that count as related, and add two traps. An exchange made through an intermediary can still be a related-party exchange, and so can one made by a disregarded entity such as a single-member LLC that you or a related party owned. If you are filing for one of the two following years, you complete Parts I and II and stop if both lines 9 and 10 are “No.” The instructions also say the two-year clock “will be tolled for any period during which your risk of loss is substantially reduced.” The statute behind this is section 1031(f), covered in our 1031 rules page.

Part III, line by line, for two purchases

Part III is the arithmetic. We run it twice with the same sale: Scenario A buys six interests ($1,701,000 of price) and Scenario B buys four ($1,134,000). In both, the $90,000 of selling costs is paid out of the closing proceeds. Publication 544's examples assume exchange expenses are paid separately, and the line 15 instruction does not say what to do with costs paid at the closing, so we treat them as cash you were credited with and then spent: they enter line 15 and are cancelled by the same expense. The check is line 19 tying to the $930,000 sale arithmetic. Your preparer may present it differently; the result should be the same.

Two cross-checks that do not depend on the form: the price less the deferred gain equals line 25 in both scenarios ($1,701,000 less $930,000, and $1,134,000 less $630,000), and line 25 equals line 18 plus line 23 minus line 15 by construction (all our arithmetic).

The one rule most people miss is the one-way netting in line 15. In the instructions' example, one exchanger takes on $150,000 of debt against $80,000 relieved, receives $40,000 of cash, and enters “only the $40,000 cash received” on line 15; the extra $70,000 of debt goes into line 18 instead. That is Scenario B: the $24,000 of extra debt raises line 18 but does not reduce the $300,000 of cash. It follows Treas. Reg. 1.1031(d)-2, which treats a liability the other party assumes as money received, and Publication 544, which lets you decrease that amount only by liabilities you assume, cash you pay or non-like-kind property you give.

What happens as you buy more or fewer interests

Same sale, same $930,000 on line 19. Only the purchase changes (all our arithmetic from the Form D terms; a negative cash figure means you add cash).

Reading the table: with one interest the boot ($1,126,500) exceeds the realized gain, so recognized gain stops at $930,000 and nothing is deferred. Five interests leave $135,000 of cash and no mortgage relief. Six is the first purchase with no boot, and it needs $30,000 more than the proceeds. Because interests are whole units, a seller whose proceeds fall between two purchases either takes some boot or adds cash; the form only shows the result. A seller who also identifies other property, or who buys part of the replacement outside the DST, has more than one group and moves to the multi-asset rules below.

The basis you carry into the DST

Line 25 is your basis in the interests, not their price. In Scenario A you paid $1,701,000 of price (counting your share of debt) and carry a basis of $771,000; the $930,000 gap is the deferred gain, which comes back into the tax calculation when you eventually sell without another exchange. Lines 25a to 25c split line 25 by type of property in proportion to fair market value, and the instructions' example allocates it between section 1250 and section 1245 property. How the trust's depreciation is then allocated to you is for the sponsor's tax statements, which this page does not read.

The FMV question on line 16

Line 16 asks for “FMV of like-kind property received.” We entered the full price of the interests. Of a $283,500 interest, about $29,400 is commissions, sponsor fee and expense reimbursement (10.4%, our arithmetic from the Form D). Whether that part belongs in line 16 (and in the basis), is an acquisition cost, or is something else is not answered by the instructions or by Rev. Rul. 2004-86. Our worked example shows the arithmetic if the price is the value; if your preparer enters a lower fair market value, lines 17, 19, 24 and 25 move with it. Ask the sponsor for its tax guidance, and keep the closing statement.

Mistakes the instructions warn about

• Reporting a related-party exchange that was structured to avoid the rules. The instructions say: “An exchange structured to avoid the related party rules isn't a like-kind exchange. Don't report it on Form 8824.” The disposition is reported as a sale.
• Forgetting the two later years. “Also file Form 8824 for the 2 years following the year of a related party exchange.”
• Reducing line 19 by a section 121 exclusion. “Don't reduce the amount on line 19 by the amount of the exclusion.” Write “Section 121 exclusion” and the amount in the space on the line instead.
• Filling lines 12 to 18 in a multi-asset exchange. If you transferred and received more than one group of like-kind properties, or cash or other property, the instructions say not to complete lines 12 through 18 and to attach your own statement, entering lines 19 to 25 only. The wording of the caution is broad enough that a reader could take it to cover any exchange that involves cash; the instructions' own example fills line 15 with cash, which is why we did. If you also gave up non-like-kind property or have several groups, attach the statement.
• Describing the wrong things on lines 1 and 2. Only real property belongs there, and real property in the United States and real property outside it are not like-kind.
• Entering the identification date wrongly. If you received the replacement property inside the 45 days, line 5 takes the date you received it.
• Using the wrong date for the taxable part. For line 22, “Be sure to use the date of the exchange as the date for reporting the gain.”
• Using last year's Form 4797 line numbers. Line 21 and line 35 point to different Form 4797 lines in 2025 and 2026 (table above).
• Treating an exchange you filed on a summary form as complete. For several exchanges, “you can file a summary on one Form 8824” and attach your own statement for each.

What a reader can do with this

• Ask for the number sheet before closing. Your intermediary and the DST sponsor's closing statement give the price, equity and each interest's share of debt; those are the inputs for lines 15, 16 and 18.
• Compare your boot to the table. If your equity into the DST is below your net proceeds, the difference is cash, and if your debt share is below the mortgage you paid off, the difference is also boot. The form does not stop you from taking either.
• Tie line 19 to a plain sale calculation (price less costs less adjusted basis). If they differ, check how closing costs and prorations were treated.
• Ask what goes on line 16 and how the sponsor's fees are treated before the preparer finishes.
• Put the 2-year dates on a calendar if any party is related, and file Parts I and II again for each of the two later years.

Common questions

Sources, read and saved on November 13, 2026: IRS Form 8824 (2026) and (2025) and Instructions for Form 8824 (2026) and (2025), irs.gov; IRS Publication 544 (2025); Rev. Rul. 2004-86; 26 CFR 1.1031(k)-1, 1.1031(d)-2 and 1.1031(b)-1 as published on the eCFR (text as of November 1, 2026); and the Form D of KB Golden Valley, DST (CIK 0002014035, accession 0001709409-24-000008, filed March 21, 2024) with the issuer's EDGAR filing list. The seller, the sale and the dates are hypothetical, and every Form 8824 figure in the examples is our arithmetic. For how the 45 and 180 days work in a late-year sale see our 1031 timeline; for what DST sponsors charge, our DST Form D fee analysis; for the DST basics, our DST overview.