Schedule D

3 — Short-Term Gain or Loss From Like-Kind Exchanges Updated for tax year 2025

What this line means

Short-term capital gain or loss recognized from a like-kind exchange (Section 1031 exchange) of property held one year or less. In most 1031 exchanges, the gain is deferred entirely. This line is used only when you received “boot” — cash or non-like-kind property — as part of the exchange, triggering partial gain recognition.

Does this apply to you?

  • You completed a 1031 exchange of investment or business property held less than one year and received cash or other non-qualifying property as part of the deal
  • You did a partial 1031 exchange where the replacement property was worth less than the relinquished property
  • You received mortgage relief in a 1031 exchange that exceeded the mortgage you assumed on the replacement property

Easy to overlook

Mortgage relief counts as boot If the property you gave up had a $300,000 mortgage and the replacement property only has a $200,000 mortgage, the $100,000 difference in mortgage relief is boot. You owe tax on that $100,000 even though you never received cash. This catches investors who focus only on the cash portion of the exchange. 1 [SOURCE: General filing pattern — boot received in 1031 exchanges]

1031 exchanges only apply to real property after 2017 Since the Tax Cuts and Jobs Act, like-kind exchange treatment is limited to real property. You cannot do a 1031 exchange on equipment, vehicles, artwork, or cryptocurrency. Filers who attempt to defer gain on personal property sales using 1031 treatment will have the deferral disallowed. 2 [SOURCE: IRS Form 8824 instructions]

Watch out for this

Assuming a 1031 exchange defers all gain when boot was received. Any cash, debt relief, or non-qualifying property you receive in the exchange triggers immediate gain recognition up to the amount of boot received. The deferred portion goes to Form 8824, but the recognized portion comes here.

  • Line 10 — Schedule D — Long-term gain or loss from like-kind exchanges (assets held over one year)
  • Form 8824 — Like-Kind Exchanges — The form that calculates the gain reported here
  • Line 7 — Schedule D — Net short-term capital gain or loss

Footnotes

  1. IRS Schedule D (Form 1040) Instructions. See also IRS Publication 17, Your Federal Income Tax. https://www.irs.gov/pub/irs-pdf/p17.pdf ↩

  2. IRS Form 8824 Instructions, Like-Kind Exchanges. https://www.irs.gov/instructions/i8824 ↩

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