Plan the exchange before a California property closes
California investors use the same federal Section 1031 structure that applies to qualifying real property. California tax and reporting issues can also apply.
Contact a Qualified Intermediary before the relinquished-property sale closes. Request a reverse-exchange review before a purchase-first closing.
IES and RES coordinate exchange documentation, funds, and closing steps with your escrow and advisory team. See our Bay Area services; the contact page provides the Hayward mailing address and telephone contacts.
Sell first
Independent Exchange Services, Inc. provides Qualified Intermediary services for delayed exchanges. Contact the team before the California sale closes.
Buy first
Reverse Exchange Services, Inc. reviews purchase-first transactions. The transaction can require a qualified exchange accommodation arrangement and an Exchange Accommodation Titleholder.
Improve property
An improvement exchange can include applicable work before you receive replacement property. Review title, construction, financing, insurance, funds, and timing early.
California property and out-of-state replacement property
The replacement property does not have to remain in California for federal like-kind treatment. Qualifying U.S. real property in another state can be part of the exchange, but California reporting can continue afterward.
California can require annual Form FTB 3840 reporting when a taxpayer exchanges California property for property outside California.
The reporting can continue until the taxpayer recognizes the California-source deferred gain or loss. The rule can apply regardless of taxpayer residence.
Read the Franchise Tax Board's like-kind exchange reporting guidance. A California tax advisor should confirm your filing years, gain allocation, and when the reporting duty ends.
Exchange administration and tax reporting are different tasks
IES or RES coordinates its exchange process and transaction records. Your tax advisor determines federal and California tax treatment and prepares the required returns. Moving the investment to another state does not, by itself, remove California's deferred-gain reporting requirements.
Information for a California review
- The California property address.
- The current owner and taxpayer.
- The sale contract and expected closing date.
- The proposed replacement-property location.
- The escrow and title contacts.
- The California tax advisor contact.
- The federal tax advisor and attorney contacts.
- The loan and insurance status.
- The current exchange deadlines.
Does California permit real-property 1031 exchanges?
California generally follows the federal real-property rule. California also has separate reporting and source rules.
What is Form FTB 3840?
Form FTB 3840 reports specified exchanges of California property for property outside California. Annual reporting can continue after the exchange year.
Must the replacement property stay in California?
Federal law can permit U.S. real property in another state. California reporting and source rules can still apply.
Can a California Qualified Intermediary give California tax advice?
The Qualified Intermediary coordinates its exchange process. Ask a California tax advisor or tax attorney to approve the state tax treatment.
Request a California transaction review
Call 888-747-1031 before the applicable sale or purchase closes. Give the team the property locations and closing dates.
This page gives general information. It does not give federal or California tax, legal, investment, real estate, lending, or financial advice.