State of California Proposes Restrictions on 1031 Exchange Property

State of California Proposes to Require that Like-Kind Replacement Property for Tax-Deferred Exchanges be located within the State of California.

The California Legislative Analyst's Office (LAO) has issued a proposed change to the State of California's requirements for 1031 exchanges. The proposal would disallow Tax Deferred Exchanges of California real property into out-of-state (non-California) "commercial" property (commercial property has not been adequately defined at this point in time).

Federal Capital Gain Taxes Deferred; but State of California Capital Gain Taxes Would Be Recognized

This proposed change would mean that you could still complete a tax-deferred exchange and the Federal capital gain and depreciation recapture income tax liabilities would continue to be tax-deferred, but any State of California capital gain and depreciation recapture income taxes would be realized and recognized unless the like-kind replacement property was also acquired within the State of California.

We will provide you with updated information as it becomes available.