Your client's 1031 exchange, prepared by Claude and signed by you: a guide for accountants

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It’s the second week of December. A longtime client calls: “We sold the office building. Do we owe tax?”

The closing was last week. The client has a broker, a Qualified Intermediary, and three replacement properties in mind. Your file has a depreciation schedule from 2004, two cost segregation studies, and a box of closing statements.

The short answer: The judgment in a 1031 exchange belongs to you. Most of the hours don’t have to. Given the client’s records, Claude can roll basis forward, estimate gain and depreciation recapture, model a full or partial exchange, test whether the replacement plan keeps the deferral intact, and draft the Form 8824 support, with a source on every figure. You review it, decide, and sign.

I started my career in public accounting, in Arthur Andersen’s real estate practice in New York. The pattern then is the same now: on a real estate file, the scarce resource isn’t knowledge of the rules. It’s the hours spent finding, reconciling, and tying out the numbers before anyone can apply the rules.

That’s the part AI has changed.

Where do the hours go on a 1031 exchange file?

Ask any CPA who handles exchanges where the time goes, and the answer is rarely the tax analysis. It’s the preparation:

• Rebuilding basis for a property held for 20 years, across purchases, improvements, partial dispositions, and depreciation methods that changed along the way
• Tying the settlement statements to what the client, the broker, and the Qualified Intermediary say happened
• Tracking debt paid off, debt taken on, and cash in or out of the exchange account
• Running the numbers again every time the client changes the replacement plan

This work is necessary, but it isn’t judgment. It’s also the work clients least want to pay for, and it falls in the busiest weeks of your year.

What can Claude prepare from the client’s records?

Give Claude the prior returns, depreciation schedules, cost segregation reports, settlement statements, loan payoff letters, and the exchange agreement. Ask it to reconcile, not to conclude. In our example, it produced this basis and gain summary, with every line tied to a source document:

Basis and gain summary (illustrative)

Item	Amount	Source
Original purchase (2004), land $1.2M and building $4.8M	$6.0M	2004 settlement statement
Capital improvements	$1.5M	Fixed asset ledger, 2009–2021
Depreciation taken	($3.4M)	Depreciation schedules, 2004–2026
Adjusted basis	$4.1M	Calculated
Sale price less $0.5M of selling costs	$13.5M	2026 settlement statement
Realized gain	$9.4M	Calculated
Of which, unrecaptured Section 1250 gain	$3.4M	Equal to depreciation taken

All figures are illustrative.

The last line matters. Unrecaptured Section 1250 gain is taxed at a maximum 25% rate (IRS Topic 409), so it is often the number that convinces a client the exchange is worth doing. Claude then models the client’s choices side by side: a full exchange, a partial exchange that takes some cash out, and an outright sale. You decide which estimate to rely on and how to present it.

Finally, Claude drafts the supporting schedule for Form 8824, which reports the property given up, the property received, the liabilities on each side, and the resulting deferred gain and new basis. IRS: Instructions for Form 8824

Which 1031 exchange traps does Claude flag before they become problems?

The expensive mistakes in an exchange are rarely about knowing the rules. They come from a detail nobody checked in time. Claude checks the file against them and reports what it finds:

• Trading down in debt. The client paid off a $5.0M loan and plans to finance the replacement with $4.0M. The Form 8824 instructions net liabilities relieved against liabilities assumed and cash paid. Unless the client adds at least $1.0M of cash, part of the gain may be recognized. Claude flags the gap before the client signs a loan commitment.
• The tax return deadline. For a sale late in the year, the exchange must be completed by the return’s due date, including extensions, if that comes before day 180. Claude puts the dates in front of you so the extension decision isn’t made by accident.
• Missing basis records. When a year of improvements or depreciation can’t be traced to a document, Claude marks it as unverified instead of filling the gap. Deciding what to assume is your call.
• Patterns worth a second look. These include a seller related to the buyer, replacement property that may be held for resale, or an owner name on the new deed that doesn’t match the old one. Claude doesn’t decide these questions. It makes sure you see them.

The value isn’t that Claude knows something you don’t. It never gets tired at 11 p.m. in the middle of tax season.

What stays with the CPA?

All of the judgment, and the signature.

Some in the exchange industry argue that AI shouldn’t be used for 1031 tax work because it can’t see the client’s basis, losses, or tax history (Equity Advantage). They’re right about a consumer typing a question into a chatbot. They’re describing a missing-data problem and an accountability problem, and a CPA firm solves both. You have the records, and you own the answer.

So the division of work is simple:

Who does what on a 1031 exchange file

Claude prepares	You decide
Basis rollforward and gain estimates, with sources	Which positions to take, and how to treat gaps in the records
Full, partial, and no-exchange scenarios	What to recommend to the client
Debt and cash netting across the exchange	Whether the plan works for this client’s broader tax picture
Draft Form 8824 support	What gets filed, and your signature

Your clients still pay for your judgment. They stop paying for the hours spent assembling the numbers.

What about client data security?

Tax returns are among the most sensitive records a client has, so this belongs in an enterprise Claude environment, not a personal chat account. We set it up so client data isn’t used to train models, access is limited to the people who work on the file, and the setup meets your firm’s own data-handling policies. If your firm already uses Microsoft 365 Copilot, ask your IT team which models are enabled. Claude models are available inside Copilot for many organizations.

If your clients are also choosing replacement properties, our article for owners shows how Claude compares candidates against the whole portfolio before day 45. When the tax questions come up, it sends them to you.

Frequently asked questions

Can AI prepare 1031 exchange tax work?

With complete records, Claude can do much of the preparation: rolling basis forward, estimating gain and depreciation recapture, modeling full and partial exchanges, and drafting Form 8824 support. A CPA reviews the work, makes the judgment calls, and signs.

What records does Claude need for a 1031 exchange?

Prior returns, depreciation and fixed asset schedules, cost segregation studies, settlement statements for the purchase and the sale, loan payoff and new loan documents, and the exchange agreement. When a record is missing, Claude marks the related figure as unverified.

Does using AI change who is responsible for the return?

No. The preparer and signer remain responsible. Claude speeds up the preparation, and the professional judgment and the signature stay with the CPA.

Is client data safe when using AI for tax work?

That depends on the environment. Use an enterprise setup where client data isn't used for training and access is controlled, never a personal chat account.

Figures in the example are illustrative. This article is not tax or legal advice.

Sources

• IRS: Instructions for Form 8824, Like-Kind Exchanges
• IRS: Topic no. 409, Capital gains and losses
• Equity Advantage: Why Using AI for 1031 Exchanges Is a Bad Idea