Form 8824 and Form 3840: Federal 1031 Reporting and California Clawback

Written by Shawn Lavi, CPA. Last reviewed October 23, 2026

A completed §1031 exchange still has to be reported. Form 8824 is the federal like-kind exchange form that goes with your income tax return for the exchange year. Form FTB 3840 is California's annual information return. It tracks California-source deferred gain when you replace California real property with like-kind property outside California.

Your qualified intermediary (QI) may hold the exchange funds and run the closing paperwork. That is not the same as preparing Form 8824 or Form 3840. For who does what, see CPA vs qualified intermediary vs attorney: who do you need for a 1031?

This guide is educational. It is not a legal opinion.

Form 8824: the federal like-kind exchange return

What Form 8824 is

Form 8824, Like-Kind Exchanges, is the IRS form for reporting an IRC §1031 exchange on your federal return for the year of the exchange. On it you list the properties given up and received. You compute realized gain or loss and recognized gain, including boot. You set the basis of the like-kind property received.

Who files it depends on how you hold title. Individuals usually attach it to Form 1040. Partnerships, S corporations, and other entities file it with the entity return when the exchange happens at that level.

Realized gain, recognized gain, and basis

These three numbers drive the form.

Realized gain is the economic gain on the relinquished property: the amount realized less adjusted basis and exchange expenses, as the instructions define those lines.

Recognized gain is the part you report as taxable in the exchange year. In a full deferral with no boot, it can be zero. If you receive boot, recognized gain is generally limited. See the boot section below.

Basis of like-kind property received is your starting tax basis in the replacement property. It carries into depreciation and into the next sale or exchange. A basis error on Form 8824 causes problems for years.

The IRS Instructions for Form 8824 walk through these lines. A QI closing summary is not a substitute for the form.

Boot and partial deferral

Boot is non-like-kind property you receive in the exchange. Cash left out of the exchange is common. Net debt relief can also create boot. Recognized gain is generally the lesser of realized gain or boot. Partial deferral is common when debt, cash, or closing adjustments don't line up.

For definitions and how to avoid it, see How to protect your 1031 exchange from taxable boot. Model boot before you lock the ID list. Fixing it after Day 45 is much harder.

What the QI provides and what the CPA still models

A good QI package usually includes the exchange agreement, assignment documents, identification letters, closing statements, and a funds-flow or exchange report. You need that package, but it is not enough by itself for Form 8824.

Your CPA still models adjusted basis, depreciation, exchange expenses, boot (cash and debt), allocations across multiple properties, and the basis of each replacement asset. Entity ownership, drop-and-swap timing, and related-party facts can change the analysis. Bring the QI package to your CPA.

Delayed (forward) exchange: the tax view

Most investors use a delayed exchange. You sell first. A QI holds the proceeds. You identify replacement property and close within the deadlines.

Day 45 and Day 180 are tax dates

Treat Day 45 and Day 180 as tax calendar dates, not only QI dates.

Day 45: the deadline to identify replacement property under the regulations. A missed ID usually ends deferral, and the sale is reported as taxable, not as a completed §1031.
Day 180: the deadline to complete the exchange, or the due date of your return including extensions if that is earlier, under the rules that apply to your facts. Closing after that generally ends deferral for that replacement.

For the timeline rules in plain language, see 1031 exchange rules 2026: complete guide. This page doesn't replace your QI's procedures. It flags when the tax outcome changes.

When to bring in a tax advisor

Before listing, if you can. Early work can shape debt replacement, cash needs, entity structure, and California or multi-state exposure. Early in the exchange, before or during ID, still helps. After both closings, a CPA can still prepare Form 8824 and plan any Form 3840 filings, but fewer levers remain.

Form FTB 3840: California's like-kind exchange information return

What Form 3840 is

Form FTB 3840, California Like-Kind Exchanges, is a Franchise Tax Board information return. It applies when you exchange California real property for like-kind property outside California and defer California-source gain or loss. The form tracks that deferred amount over time.

You generally file it for the exchange year and for each later year until the California-source deferred gain or loss is recognized. Check the current FTB Form 3840 instructions and FTB guidance on reporting like-kind exchanges for filing mechanics and attachments.

Who must file, including nonresidents

Leaving California doesn't end the duty while California-source deferred gain remains. Nonresidents who relinquished California real property in a §1031 and deferred California-source gain can still have to file Form 3840. So can taxpayers who otherwise have no California income tax return. Don't assume "I left California, so I'm done."

What 3840 tracks

Form 3840 tracks deferred California-source amounts. It is not, by itself, a tax bill. California may collect on the tracked amount when it is recognized later, for example on a taxable sale of the replacement property. A later §1031 exchange can continue the tracking instead of ending it.

What "clawback" means, and what it doesn't

Clawback here means California keeps tracking California-source deferred gain after you replace California property with out-of-state like-kind property. Federal deferral can succeed while California tracking still applies.

Clawback does not mean a tax bill in the exchange year just because you filed Form 3840. The return follows the deferred amount. A later taxable disposition of the replacement property, or another recognition event under the rules, is when that tracked gain can become taxable in California.

A later §1031 of the replacement property can continue both deferral and tracking. Leaving California, buying in a no-income-tax state, or finishing the federal exchange cleanly does not by itself end the tracking.

Form 8824 vs Form 3840

Topic	Form 8824 (federal)	Form FTB 3840 (California)
Authority	IRS / IRC §1031 reporting	Franchise Tax Board
What it is	Like-kind exchange computation on the federal return	Annual information return tracking CA-source deferred gain/loss
Typical trigger	You complete a federal §1031 exchange in the tax year	You relinquish CA real property and replace it with out-of-state like-kind property while deferring CA-source gain/loss
Residency	Files with your federal return regardless of state	Can apply to residents and nonresidents with CA-source deferred amounts
Timing	Exchange-year filing with Form 1040 or entity return	Exchange year and each later year until the CA-source deferred amount is recognized
What it tracks	Realized vs recognized gain, boot, basis of like-kind property received	California-source deferred gain or loss until recognition
Who prepares	Taxpayer / CPA (the QI does not file it for you)	Taxpayer / CPA (QI custody is not an FTB filing)
Same deal?	Often yes on CA to out-of-state exchanges	Often yes alongside 8824 on those deals

Reverse exchanges: what changes for tax reporting

In a reverse exchange you acquire the replacement property before, or as, you dispose of the relinquished property. Parking arrangements and exchange accommodation titleholder (EAT) structures change timing and paperwork. They don't remove the need for correct federal reporting on Form 8824.

Reporting points to watch in a reverse deal:

Who holds title during the parking period, and how the documents describe the exchange
Basis and holding period facts that feed Form 8824
The closing sequence, and which year the exchange is reported
Debt and cash movements that still create boot
California Form 3840 when California property is relinquished for out-of-state replacement, even on a reverse path

This page is not a reverse-exchange operating manual. Flag a reverse structure early in an Exchange Tax Plan consult so basis, timing, and state tracking are planned before the documents lock.

Improvement / build-to-suit: tax reporting flags

An improvement (build-to-suit) exchange lets you use exchange proceeds for improvements on the replacement property within the exchange period, subject to the QI and regulatory structure. Improvements count only if they're built while the accommodator holds title, before the property is transferred to you. For Form 8824, focus on records that support basis: what was paid, when improvements were placed, how costs split between land and building, and whether any amounts fall outside like-kind treatment.

Thin improvement records make weak Form 8824 workpapers and weak depreciation schedules later. If California property was relinquished for out-of-state improved property, Form 3840 tracking can still apply. Treat the improvement structure as a planning item in the Exchange Tax Plan, not something to fix after the QI closes.

Out-of-state replacement and no-tax states

Investors often ask: if I 1031 from California into Texas, Florida, Nevada, or another no-income-tax state, is California done with me?

Federal deferral can still work, and the destination state's income tax may be zero. That does not end California's tracking of California-source deferred gain when Form 3840 applies. You may still file Form 3840 every year until recognition. A later taxable sale can bring California back in for the tracked portion.

Model the multi-state picture before you ID. "No tax" marketing in the destination state is not a California clearance letter.

Withholding (Form 593), Form 3840, and Form 8824

These are three different things.

Form 593 withholding. A qualifying exchange is exempt from California's 3⅓% real estate withholding at closing. You certify it on Form 593 to escrow or your QI. If you take more than $1,500 in cash or other boot, the QI withholds on it, and if the exchange fails, the QI withholds 3⅓% of the sales price.

Form FTB 3840 is the annual information return that tracks CA-source deferred gain after a CA to out-of-state like-kind exchange, until recognition.

Form 8824 is the federal like-kind exchange computation for the exchange year: realized and recognized gain, and replacement basis.

Handling withholding at closing does not replace Form 8824. It does not replace Form 3840 when 3840 is required. Ask your CPA to map all three to your file before you assume "we handled California at escrow."

Missed filings

Missed Form 3840

If you stop filing FTB 3840 and don't file a California return, the FTB can issue a proposed assessment for the deferred gain, plus penalties and interest. A CPA can file the missed years and respond to any FTB notice. Don't rely on a penalty figure from a blog. Bring your prior exchange documents and any FTB notice to a CPA promptly.

Late or missing Form 8824

If the exchange-year return went in without Form 8824, or with an incomplete computation, talk to a CPA about amending or correcting the federal return as your facts allow. QI reports alone don't fix a missing or wrong Form 8824. Act before the next filing season compounds basis errors.

LaviCPA can review missed filings inside an Exchange Tax Plan or a follow-on engagement. Outcomes depend on your documents and the IRS and FTB rules. No result is guaranteed.

What's in an Exchange Tax Plan

LaviCPA's nationwide 1031 Exchange Tax Plan is a one-time tax planning engagement. It is not QI custody, and it is not a legal opinion. Shawn Lavi, CPA (principal) and Elias Lavi, CPA (co-owner and founder) plan the tax reporting side of the exchange so Form 8824 and any Form 3840 or multi-state duties aren't an afterthought.

We prepare Form 8824 and FTB 3840 when we're engaged for your returns. That's separate from the one-time Exchange Tax Plan.

Usually in the plan

Boot and basis model for the deal as structured
Form 8824 package plan (what the return needs and what workpapers to keep)
Form 3840 and multi-state checklist when California or other state tracking applies
Day 45 and Day 180 tax dates tied to your deal
Reverse or improvement structure flags (timing, basis, paperwork)
A written issues list you can share with your QI, attorney, or annual preparer

Not in the plan

Holding exchange funds or acting as QI
Selecting or vouching for a QI
Legal opinions on title, entities, or securities
Your annual tax preparation, unless separately engaged

Fee: quoted on consult.

How to book: Start with the national 1031 Exchange Tax Plan page, or book a New Client Introduction.

Consults are remote by default, and we work with clients nationwide.

Los Angeles readers can also see our local 1031 exchange CPA page.

Documents checklist

Bring what you have. It saves a second meeting.

Core exchange file

Purchase and sale agreements for the relinquished and replacement properties
Closing or settlement statements
QI exchange agreement and assignment documents
Written Day 45 identification letters and any amendments
QI funds-flow or exchange summary reports
Loan documents showing debt paid off and debt placed on the replacement

Tax workpapers

Adjusted basis and depreciation schedules for the relinquished property
Prior-year returns if the property was depreciated or previously exchanged
Draft or prior Form 8824 workpapers, if any
Prior Form FTB 3840 filings if this is a continued CA tracking year
Entity documents (LLC or partnership agreements) if title is not in your name

If reverse or improvement

EAT or parking agreements and the title timeline
Improvement budgets, draws, and invoices that support basis
Any attorney memos you already have (for coordination, not in place of tax modeling)

FAQ

What is Form 8824 and who files it?

It is the federal like-kind exchange form filed with your income tax return for the exchange year. You or your CPA prepare it. The QI does not file it for you.

What does Form 8824 report?

The properties exchanged, realized gain or loss, recognized gain (including boot), and the basis of the like-kind property received. The IRS Instructions for Form 8824 give the line detail.

What is Form FTB 3840?

California's annual like-kind exchange information return. It tracks California-source deferred gain or loss after certain California-to-out-of-state exchanges.

What is the California "clawback"?

California's tracking of California-source deferred gain after you replace CA property out of state. Form 3840 supports that tracking. It is not a tax bill in the exchange year by itself.

How do Form 8824 and Form 3840 work together?

On many CA to out-of-state deals you need both. Form 8824 handles the federal computation. Form 3840 tracks California-source deferred amounts every year until recognition.

Who must file Form 3840, including nonresidents?

Taxpayers who defer California-source gain or loss in a qualifying CA-to-out-of-state exchange generally have to file under FTB rules. That includes many nonresidents and some people with no other California return.

Do I still track CA tax if I 1031 into a no-income-tax state?

Often yes, when California-source deferred gain remains. The destination state's rules don't end California tracking by themselves.

What changes on the forms in a reverse or improvement exchange?

Timing, paperwork, and basis records change. Form 8824 is still required. Form 3840 can still apply when CA property is relinquished for out-of-state replacement. Flag the structure in an Exchange Tax Plan.

What belongs in an Exchange Tax Plan before vs after closing?

Before closing: the boot and basis model, ID and debt strategy, 3840 and multi-state flags, reverse or improvement flags, and tax dates. After closing: the Form 8824 package plan, the 3840 filing calendar, document gaps, and any catch-up for missed items. Earlier is better.

What if I missed 8824 or 3840 filings?

Gather your QI and closing documents and any notices. Have a CPA review your catch-up options.

Answer-ready summaries

Q1: What is Form 8824?

Form 8824, Like-Kind Exchanges, is the federal form for reporting an IRC §1031 exchange on your income tax return for the exchange year. It shows the properties given up and received, realized and recognized gain (including boot), and the basis of the like-kind property received. A qualified intermediary may handle the exchange funds, but Form 8824 is still the taxpayer's and CPA's filing.

Q2: What is California Form FTB 3840?

Form FTB 3840, California Like-Kind Exchanges, is an annual Franchise Tax Board information return for taxpayers who exchange California real property for like-kind property outside California and defer California-source gain or loss. You generally file it for the exchange year and each later year until that gain or loss is recognized. Nonresidents and taxpayers with no other California return may still need to file it. It tracks deferred amounts. It is not, by itself, a tax bill.

Q3: How do Form 8824 and Form 3840 work together?

On many California-to-out-of-state exchanges you need both: Form 8824 for the federal computation and Form FTB 3840 to track California-source deferred gain. Federal deferral can succeed while California still requires annual 3840 filings until recognition. A reverse or improvement exchange can change timing and paperwork, but it still needs correct federal reporting, and it can still trigger 3840 when California property is relinquished for out-of-state replacement.

Sources

IRS Instructions for Form 8824 (Like-Kind Exchanges)
FTB Form 3840 instructions and FTB guidance on reporting like-kind exchanges

Forms and instructions change. Check the current year's versions before you file.

Form 8824 and Form FTB 3840: federal 1031 reporting and the California clawback