CA 1031 Exchange - Spidell

CA 1031 Exchange

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Message Board CA 1031 Exchange

This topic contains 5 replies, has 3 voices, and was last updated by Ellie Eisenman 2 months, 2 weeks ago.

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  • #158008
    Ellie Eisenman
    Participant

    <span style=”font-family: ‘Times New Roman’,serif;”><span style=”color: #000000;”>I just need some clarification on 1031 exchange for a nonresident who exchanged property in CA for property in Texas.  Am I understanding correctly that they eventually will pay tax in CA even if they are not a CA resident?  Doesn’t the gain follow the property? He is now an AZ resident if that matters.  I would think he would pay Fed tax if he sells but it seems like he ultimately, upon sale down the line, pays the lesser of CA deferred gain or gain on sale to CA, correct?</span></span>

     

  • #158015
    Peter Muffoletto
    Participant

    yes, the tax will be paid to California when the last property in the stream of exchanges is disposed. The taxpayer must file an annual Form 3840.

  • #158019
    Ellie Eisenman
    Participant

    thank you!  that is what I thought but seems odd.  I thought gains followed the taxpayer but is that something CA hooked on to so they could keep the gain?  Maybe I am thinking that way for stock because stock doesn’t have a home….???

    really appreciate you answering.

  • #158020
    Sandy Weiner
    Participant

    Yes Ellie. CA is making sure they are getting their gain from the original sale.

  • #158021
    Peter Muffoletto
    Participant

    you are thinking of the way it worked prior to 2014 when the legislature changed the rules to follow the gain no matter where one moved, or purchased new property. It actually while irritating, makes sense. We specialize in 1031 exchanges, and one of the galling issues is that we have lost a number of clients since 2014 due to this issue in that many believe that by changes to another professional, and not filing the annual 3840 that they will somehow fall off the grid. to date we haven’t seen the results of that, but being that we also specialize in tax controversy, I am sure that we will at some point see some of those come back due to their noncompliance. Sometimes strong enforcement by the tax authorities is a good thing.

  • #158041
    Ellie Eisenman
    Participant

    thank you.  I truly appreciate all the help.