Form 3840 Instructions - Spidell

Form 3840 Instructions

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Message Board Form 3840 Instructions

This topic contains 3 replies, has 2 voices, and was last updated by Lynn Freer 2 months ago.

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  • #171095
    David Eisenman
    Participant

    In round numbers, there was a 1031 exchange in 2014, deferring $20M of CA gain, replacing it with three properties one in Colorado and two in California. In 2018 the Colorado property was sold (in a partial exchange because not enough replacement property could not be found). There was a $15M taxable gain, of which $4M was appreciation of the Colorado property between 2014 and 2018.
    Is there any CA detail or regs on how to apportion the gain between CA and CO? My current thought is to take 15/20 of taxable gain against both California and Colorado, this seems reasonable to both sides.

  • #171192
    Lynn Freer
    Participant

    You report to CA the lesser of the deferred gain or the gain recognized. Were other properties sold? What was the deferred gain on the original exchange? What was the taxable gain on the new property? What was the total gain on the 2018 transaction, which it sounds like only the CO property was sold?

  • #171272
    David Eisenman
    Participant

    Thank you Lynn. Only the Colorado property was sold, and the taxable gain was $4M in four years. The deferred gain on the original exchange of CA property was $20M. The total taxable gain on this transaction is $15M. This is an S-Corp, all of the shareholders are CA residents, so there is also 1.5% on the CA portion. I fear that if we report to CA the lesser of the deferred gain or gain recognized which is the full $15M, then Colorado is going to expect tax on their share of the gain.

  • #171273
    Lynn Freer
    Participant

    Both states will tax the gain but you take a credit on CO for the CA tax paid. Just to confirm, you only consider the CO property and the gain that was deferred on that property, not the entire gain. That would be on the original 3840.