This is a great article by Ron Ricard, Certified Exchange Specialist at IPX if you have an investment property in California:
If you own California real estate and are planning on deferring taxes when you sell your investment by
purchasing property in another State via a 1031 Exchange, be aware that California will soon be tracking your
future real estate transactions to determine if, at some point, you owe California previously deferred State taxes.
Over the past few years there has been an increase in the number of investors who have looked to minimize
their exposure to the steep tax rates that the State of California has imposed. Many investors have utilized 1031
Exchanges to move their investments, tax deferred, out of California and into States with no State taxes or more
favorable tax rates. At a future date some investors will sell these new “non-California” properties and choose to
take their profits rather than participating in another 1031 exchange. These investors, of course, anticipate
paying Federal Capital Gains Tax, Depreciation Recapture and Healthcare Surtax on their profits, but what
about the State of California tax that was originally deferred?
Recently, the State of California Assembly passed a Bill which added new sections to the California Tax &
Revenue Code. These sections provide that taxpayers in a 1031 Exchange that sell California Property and
purchase NON-California Replacement Property will be required to file an annual information return with the
California Franchise Tax Board (FTB), reporting this NON-California property. The California State taxes that
were previously deferred will be due when and if taxpayers sell their new properties and elect to take their profits
rather than continuing to defer taxes through another 1031 Exchange. If taxpayers fail to file the annual return,
the FTB may estimate taxes due and assess tax, interest and penalties. The new law shall apply to exchanges
of property that occur in taxable years beginning on or after January 1, 2014. The text of Assembly new Bill is
available at: http://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201320140AB92.
At IPX1031®, we pride ourselves on not only being the industry leader in service and security, but also strive to
help our clients and their advisors keep current on issues of interest. We aim to be your valued information
resource. For more information or if you have questions, please feel free to contact me at your convenience.
Ron Ricard can be reached at ron.ricard@ipx1031.com or 408-483-1031
