Ca 1031 Exchange - Spidell

Ca 1031 Exchange

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Message Board Ca 1031 Exchange

This topic contains 4 replies, has 3 voices, and was last updated by Curtis Webb 6 months, 1 week ago.

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  • #134491

    Here is a scenario –

    Taxpayer is a California resident the entire time. He exchanges a California property valued at $1,000 with a basis of $600, for ID property. That means there is a deferred CA gain of $400. Say two years later, he sells the ID property for $1,300 with no change to tax basis, so the total gain is now $700. So the gain earned while in CA was $400 and the gain in ID was $300

    Since both states have an income tax, how would the gain be split between the states? Since the taxpayer is a CA resident he would get a credit for tax paid in Idaho, but will CA allow the credit on the entire gain? Can the CA gain be allocated away from Idaho.

    Would there be any double taxation due to CA’s clawback provision?

  • #134527
    Lynn Freer

    CA will tax the $400. I believe ID will tax the entire gain and CA will give a credit for tax paid to ID on the $400 gain.

  • #134736
    Curtis Webb

    Thanks for the quick answer. Since the taxpayer is a CA resident, I’m certain that the entire $700 gain is taxable in CA, not just the $400. It’s just a question of how much credit that CA will give for taxes paid to ID. It appears to me that ID is going to tax the entire gain; so is is safe to say that CA will give a credit for all taxes paid to ID in this case?

    The reason I asked this question is because it was my understanding that CA clawed back the gain. I believe that a non-resident could be taxed on the $400 gain in CA and also taxed on the full $700 gain in ID. CA would not give a credit in this case because the taxpayer is a non-resident (I believe) and ID may not give a credit either because the gain is sourced to ID under their rules.

    Any clarification that you have would be appreciated.


  • #134771
    Lynn Freer

    Sorry, I assumed the taxpayer was no longer a CA resident. As residents they are taxed on income from all sources so the entire $700 would be taxed. But as CA residents, they will get a credit for the double taxed income to ID so they’ll get a credit on the entire $700.

    • #134823
      Curtis Webb

      Thanks for the clarification.