California 1031 Exchange Rules

Document business or investment use, lease history, personal use, development activity, and intent for relinquished and replacement property. Obtain tax advice on mixed or changing use.

California location does not relax the federal held-for requirement.

Match tax owner, title owner, entity, trust, disregarded entity, and signing authority between relinquished and replacement sides. Review changes before closing.

Related people or commonly owned entities are not automatically the same taxpayer.

Execute exchange documents and assignment notices before the taxpayer receives sale proceeds. Authenticate wire instructions and intermediary controls.

Sending funds to a QI after constructive receipt generally cannot recreate the intended exchange.

Record the relinquished transfer date, 45-day identification deadline, 180-day completion deadline, and tax-return due date interaction with advisers.

Use calendar dates, weekends, and holidays under the applicable rules. California escrow delays do not extend them automatically.

Use legal names, addresses, parcel descriptions, DST names, or other permitted descriptions and deliver identification to an authorized party on time.

Maintain proof of delivery and any revocation. A broker shortlist is not the identification record.

Coordinate the three-property, 200-percent, and 95-percent rules with current federal regulations and professional advice.

Each identified option should be sufficiently diligenced and closeable. A long list can fail technically and operationally.

Model sales price, basis, gain, exchange expenses, cash, notes, debt relief, replacement value, new debt, and recognized amount.

Rules of thumb about buying equal or greater value can be incomplete. Use the full transaction facts.

Review title, leases, income, expenses, condition, environment, financing, insurance, taxes, management, and closing capacity.

The tax calendar changes execution speed, not property quality. Maintain backups.

Provide current Form 593 certifications before closing, identify remitter and QI, calculate withholding or exemption, and plan for boot, cash-poor, installment, or failed-exchange outcomes.

Withholding is a payment process, not final tax liability.

Reconcile Form 8824, California return, Form 593 credits, basis schedules, and entity filings. Use current-year instructions.

California and federal differences should have written explanations.

When California property is exchanged for out-of-state property and California-source gain or loss is deferred, apply current FTB 3840 rules and annual filing.

Carry the source amount through later exchanges and partial dispositions as required.

Maintain original realized gain, recognized amount, deferred California amount, basis, depreciation, later improvements, and carrying properties.

Changing residence or replacement state does not rewrite historical source automatically.

These structures can require an exchange accommodation titleholder, additional entities, lender, title, tax, and documentary planning before acquisition or construction.

Do not improvise after the taxpayer has taken title or paid project costs.

Review vesting, entity good standing, trust certification, authority, county recording, lender, escrow, and replacement seller requirements before identification. Correcting title can consume the exchange window.

Taxpayer consistency and practical insurability should be solved together, not after the replacement contract is signed.

Record casualty, condemnation, insurance, replacement deadlines, federal or state disaster declarations, and any published extensions. Obtain current guidance.

Do not assume wildfire or other disruption extends Section 1031 periods. Relief depends on authoritative action and taxpayer facts.

Classify broker, escrow, title, legal, intermediary, lender, repair, prorations, reserves, and other closing items with tax advisers. Reconcile how each affects proceeds, boot, and basis.

Paying an expense from QI funds does not automatically make it an exchange expense.

Identify related buyers, sellers, entities, leases, and later dispositions. Apply federal holding and anti-abuse rules and California reporting to the actual sequence.

A transaction can use a qualified intermediary and still fail because related-party facts were ignored.

When the exchange period extends beyond the normal return due date, determine whether a valid extension is needed to preserve the full federal completion window. Calendar California return consequences as well.

Tax-return filing can shorten the practical exchange period if handled without advice.

Maintain backup identifications, contract rights, due-diligence status, financing alternatives, and decision dates. Document when to terminate and move to another property.

The exchange should not close on a defective asset merely because the preferred seller failed late.

Model recognized gain, withholding, QI release, tax year, estimated payments, and credit. Determine whether a remaining purchase still qualifies.

A partial exchange can be rational. It should be chosen with known after-tax economics.

Use authenticated wires, dual approval, independent callbacks, verified beneficiaries, and written closing checklists. Retain QI statements and confirmations.

Deadline urgency creates operational risk that tax compliance cannot cure.

Keep sale, QI, identification, replacement, financing, closings, Forms 8824, 593, 3840, returns, basis, depreciation, and later events together.

The final memorandum should show what qualified, what was recognized, what California amount remains, and who owns each next filing.