Question 1

Does California recognize 1031 exchanges?

Accepted Answer

California recognizes 1031 exchanges for real property and generally conforms to federal IRS rules regarding tax deferral. However, the state has its own requirements, including tracking deferred gains, especially when the replacement property is located outside California. It is important for California investors to comply with both federal and state reporting rules to maintain the exchange's tax-deferred status.

Question 2

How much does it cost to do a 1031 exchange in California?

Accepted Answer

The cost of completing a 1031 exchange in California varies depending on the complexity of the transaction and the Qualified Intermediary you hire. Basic exchanges involving a single property are typically less expensive, while more complex deals may involve higher fees. It is wise to compare services and ask for a detailed quote from your Qualified Intermediary before beginning the process.

Question 3

Can I use a 1031 exchange on a primary residence in California?

Accepted Answer

You cannot use a 1031 exchange on your primary residence in California because the IRS only allows 1031 exchanges for properties held for investment or business use. However, if part of your property is used for investment purposes, such as a duplex where you live in one unit and rent out the other, you may be able to complete a partial 1031 exchange for the investment portion. It is essential to clearly separate personal and investment use and consult with a tax advisor to determine eligibility.

Question 4

Can I complete a 1031 exchange from California to another state?

Accepted Answer

You can complete a 1031 exchange from California to another state as long as the properties involved are held for investment or business purposes and meet the IRS's like-kind requirements. California requires additional tracking for deferred state taxes when the replacement property is located out of state. You need to file Form FTB 3840 annually so the state can monitor the deferred gain in case it becomes taxable later.

Question 5

Can I use a reverse 1031 exchange in California?

Accepted Answer

You can use a reverse 1031 exchange in California, but it is more complex than a standard exchange and requires careful planning. Because of the legal and logistical complexity, reverse exchanges should always be handled by experienced professionals familiar with California and federal requirements.

1031 Exchanges in California

First American Exchange Experts in California

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