California Real Estate Investors Should Be Aware of New Like-Kind Exchange Reporting Requirements, According to Exeter 1031 Exchange Services, LLC

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California announces new Franchise Tax Board Form 3840 for California Like-Kind Exchanges. Taxpayers involved in a 1031 Tax-Deferred Exchange after January 1, 2014, subject to new requirement.

Exeter 1031 Exchange Services LLC is advising its clients and the real estate investment community of new reporting requirements issued by the California Franchise Tax Board ("FTB") this summer. This impacts reporting requirements for California Like-Kind Exchanges when investors sell relinquished property located in California and reinvest through a 1031 Exchange by acquiring replacement property outside of California.

California Claw-Back Requirement

California has historically taken the position that any capital gain earned on California real estate is subject to California tax upon the ultimate sale of the real property. This applies even if the investor sells the California real estate and subsequently 1031 Exchanges into investment property located outside of California. That is, they 1031 Exchange out of California real estate and into non-California real estate. This has been named the "California Claw-Back." However, there had not been any mechanism for tracking the subject real estate in order to enforce the California Claw-Back Provision — until now.

California State Assembly Enacts Legislation

The California State Assembly signed legislation into law that requires investors who complete a 1031 Exchange transaction by selling California real estate and buying non-California real estate as their replacement property to file an annual information return with the California Franchise Tax Board (FTB). Each year, they must file a return on their like-kind exchange into non-California real property.

The new California Form FTB 3840 will be required for taxpayers who complete a 1031 Tax Deferred Exchange after January 1, 2014, when they sell relinquished property in California and purchase replacement property outside of California.

The new law applies to any 1031 Exchanges of real property that close in any tax year beginning on or after January 1, 2014 (i.e. after December 31, 2013).

Exeter 1031 Exchange Services, LLC is a leading national provider of Qualified Intermediary, Exchange Accommodation Titleholding, and 1031 Exchange Advisory Services for individual, corporate and institutional clients throughout the United States and the world. Exeter administers all types of 1031 Exchange transactions, including Forward, Reverse and Improvement (Build-To-Suit or Construction) 1031 Exchange structures, for real estate, personal property and foreign assets.

Exeter 1031 Exchange Services, LLC has national office locations in San Diego, Los Angeles, Newport Beach, Fresno, and San Francisco, California, as well as Colorado Springs, Colorado; Chicago, Illinois; Pittsburgh, Pennsylvania; East Northport, New York; and Springfield, New Jersey. Contact Exeter at anytime at Exeter 1031 Exchange Services LLC

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Leah Swearingen

William L. Exeter

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