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Esquire Real Estate Blog

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If you know what 1031 exchange is, you will want to read this.

Bryan Zuetel

§ 1031 New Law

For any 1031 tax-deferred exchange that occurs on or after January 1, 2014, a California taxpayer selling a California property and acquiring a “like-kind” property located outside of California must file an information return with the California Franchise Tax Board (FTB) for that taxable year and every year thereafter in which the gain or loss from the exchange has not been recognized. If a taxpayer fails to file such information return and tax returns, the FTB may propose to assess the amount of tax, interest, and penalties due by estimating net income from any available information, including the amount of gain.  (AB 92 codified as Cal. Rev. & Tax Code § 24953)

For further information, please see the following PDF with analysis from PricewaterhouseCoopers: http://goo.gl/8W9iC0.

You can follow the FTB news and promulgated guidelines, procedures, and standards for implementing the new law on the FTB website for this new law: http://goo.gl/sh7fnS.

Takeaway

It is questionable whether the law will withstand judicial review, as it appears to unduly impose an additional burden on out-of-state exchanges and favors in-state exchanges.  However, in the meantime, be prepared to submit the information return and tax returns every year if you sell a California investment property and acquire a like-kind property outside of California.  Or, simply acquire another California like-kind property.  Esquire Real Estate is available to represent and advise you regarding your sale or purchase of investment property and 1031 exchanges.