See how much federal, California state, and depreciation recapture tax a like-kind exchange could defer on your investment property.
Real property held for investment or productive use in a trade or business. Personal residences, fix-and-flip inventory, and partnership interests do not qualify. The replacement property must also be held for investment or business use. Like-kind is broadly defined for real estate: a Peninsula rental can be exchanged for raw land, a strip mall, an apartment building, or a Delaware Statutory Trust (DST) interest.
From the day you close on the relinquished property, you have 45 calendar days to formally identify replacement properties (up to three, or more under specific value rules) in writing to your Qualified Intermediary, and 180 days total to close on one or more of them. These deadlines are strict, run concurrently, and have no extensions for weekends or holidays.
It carries over to the new property. You don't pay 25% recapture tax now, but the deferred recapture is added to your basis tracking and triggered when you eventually sell without another exchange. For a Peninsula investor with $400K of accumulated depreciation, deferring this $100K of immediate tax is often the single biggest reason to choose a 1031 over an outright sale.
If you exchange a California property for one outside California, the deferred California gain is "clawed back" when the out-of-state replacement is eventually sold. You're required to file FTB Form 3840 each year you hold the out-of-state property. Many investors are caught off-guard by this years later. The deferral still works, but California will collect its tax eventually unless the chain continues.
Lisa works with seasoned Qualified Intermediaries and CPAs and has sourced replacement properties for investors moving in and out of California.
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