California wants taxes from out-of-state 1031 exchanges

California recently enacted a new statute, effective for real estate exchanged in a tax-free 1031 exchanges, Beginning January 1, 2014, a like-kind exchange of California real estate for property located outside California will require an information return with the Franchise Tax Board (FTB) for the year of the exchange, and for all subsequent tax years until the replacement property is sold. This new reporting will allow the FTB to keep records of, and ultimately tax, the sale of the replacement out-of-state property.

New California Revenue and Tax Code Section 24953, which was added by AB 92, does not add a new tax. Instead, the new law requires 1031 transactions that previously “fell through the FTB’s cracks” to be reported to the FTB.


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