California recognizes 1031 Exchanges which allows an investor to defer capital gains taxes as long as you are purchasing another “like-kind” property to replace the one you are selling. California does recognize it if you purchase your upleg in another state, but beware of the above “Clawback” rule.

How long do you have to buy a property with a 1031 exchange?

This usually implies a minimum of two years’ ownership. To receive the full benefit of a 1031 exchange, your replacement property should be of equal or greater value. You must identify a replacement property for the assets sold within 45 days and then conclude the exchange within 180 days.

What happens when you sell a 1031 exchange property?

When you use a 1031 exchange, you’re only delaying your capital gains tax liability, not canceling it out permanently. So when you sell a 1031 exchange property, you’re then liable for the capital gains tax that you carried over from the initial property.

How to file a 1031 exchange in California?

Filing a 1031 exchange on your California state tax return is pretty straightforward. If you perform a like-kind exchange of California property, you must report that exchange on FTB Form 3840, provided you do both: Perform a 1031 exchange for property outside of California, and Defer gain or loss under IRC 1031

How long do you have to own a 1031 home before selling it?

Also, Section 121 has a special rule for 1031 property that states that you have to own the home for at least 5 years (either as 1031 property or principal residence) before you sell it.

Can a 1031 exchange defer capital gains tax?

The 1031 exchange can help you defer capital gains tax while you reinvest the profits from an initial investment into a new property, or a series of them. But investors must be careful to follow a few important rules, or risk losing those tax advantages.