Moving your equity into out-of-state property in a tax-free §1031 transaction? The California tax man is tracking you for that taxable resale!
Revenue & Taxation Code §§18032; 24953
Added by A.B. 92
Effective date: Taxable years on and after January 1, 2014
Persons exchanging their equity in California property they own into out-of-state §1031 property are required to file an information return with the California Franchise Tax Board (FTB). Information returns are required for each taxable year in which profit is deferred untaxed. Previously, the information return was only required for §1031 transactions of properties located within California.
The FTB will estimate net income and assess taxes, interest and penalties due from persons who fail to file these §1031 information returns and any required tax returns.
Editor’s note — To meet this requirement, California taxpayers will complete and file IRS Form 8824 with their California tax returns. For persons who do not pay taxes in California (e.g., non-California residents), the FTB will create a standalone information return form.
The purpose of this code is to recoup taxes from out-of-state individuals and corporations who skip out on paying California taxes on recognized gains when the eventual non-exempt sales transaction occurs years later.