1031 Exchange California

Thinking about using a 1031 Exchange in California? A 1031 Exchange, also known as a like-kind exchange, can be a powerful tool for real estate investors who want to defer capital gains taxes when selling investment or business property. California follows federal 1031 rules but also has its own state-specific requirements, so it’s important to understand the process clearly.

This page explains what a 1031 Exchange is, the rules and timelines in California, and how to get started. You’ll also find official California resources and a free PDF guide you can download.

What is a 1031 Exchange in California?

Definition & Key Features

A 1031 Exchange allows you to sell one investment or business property and reinvest the proceeds into another “like-kind” property—deferring capital gains taxes that would normally be due. “Like-kind” in this context means the property must also be held for business or investment purposes, not personal use.

Why Use a 1031 Exchange?

  • Defer capital gains taxes on the sale of investment real estate

  • Reinvest fully to acquire larger or better-performing property

  • Diversify or reposition your real estate portfolio

  • Assist with estate or succession planning

1031 Exchange Rules California

Time Limits & Identification Rules

California follows federal deadlines:

  • 45 days to identify replacement property after the sale

  • 180 days to close on the replacement property (or the due date of your tax return, whichever is earlier)

Property Requirements

  • Must be investment or business property (not primary residence)

  • Replacement property must be “like-kind” real property

  • Personal property is no longer eligible under federal law

The Role of a Qualified Intermediary (QI)

A Qualified Intermediary (sometimes called a facilitator) is required in most deferred exchanges. They handle the proceeds of the sale and ensure IRS and California rules are followed.

California-Specific 1031 Exchange Rules

Conformity with Federal Law

Since 2019, California generally conforms to federal changes under the Tax Cuts and Jobs Act, which limit 1031 Exchanges to real property only.

Reporting Requirements: Form FTB 3840

California requires taxpayers to file Form FTB 3840 if exchanging property located in California for property located outside the state, or if deferred gain has not yet been recognized. This form must be filed annually until the gain or loss is reported.

Learn more on the official California Franchise Tax Board (FTB) site.

Withholding Rules & Facilitator Responsibilities

California requires certain withholding by Qualified Intermediaries if gain is recognized or the exchange fails. Exemptions may apply depending on the transaction details. See the FTB Qualified Intermediary Withholding Guidance.

1031 Exchange Timeline California

Step-by-Step Process

  1. Decide to sell investment property.

  2. Engage a Qualified Intermediary before the sale closes.

  3. Sell your property (the relinquished property).

  4. Identify replacement property within 45 days.

  5. Close on replacement property within 180 days.

Common Pitfalls

  • Missing the 45-day identification deadline

  • Failing to complete the purchase within 180 days

  • Not using a Qualified Intermediary

  • Receiving “boot” (cash or non-qualifying property) that triggers taxable gain

Want everything in one place?

We’ve created a free PDF guide that walks you through the process, including examples, timelines, and checklists.

Choosing 1031 Exchange Facilitators in California

When selecting a Qualified Intermediary:

  • Ask about their experience and credentials

  • Understand their fees and what services are included

  • Verify their knowledge of California-specific rules

  • Ensure they have safeguards in place for client funds

Frequently Asked Questions

  • It’s a tax-deferral strategy under Section 1031 of the Internal Revenue Code that lets you exchange investment real estate for like-kind property.

  • You have 45 days to identify replacement property and 180 days to close.

  • Rules mirror federal law with additional state reporting (Form FTB 3840) and withholding requirements if property is exchanged out of state.

  • Yes, most exchanges require a Qualified Intermediary to handle the process correctly.

Disclaimer

This material is for informational purposes only and should not be considered legal, tax, or financial advice. Always consult with a qualified tax advisor or attorney before making investment decisions.

Ready to Explore Your Options?

Portrait of San Diego realtor Elisabeth Warford, a young woman with long brown hair, smiling, wearing a tan blouse and gold necklace, standing in front of a white brick wall.

Whether you’re just learning about 1031 Exchanges or considering your next property investment, having the right real estate partner makes all the difference.

Call or text today to discuss your real estate goals and see if a 1031 Exchange could be right for you. We’ll also connect you with trusted tax and legal professionals for personalized guidance.

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