Like-Kind IRC Section 1031 Property Exchange Reporting—Information Return Requirement
Effective January 1, 2014, California Revenue and Taxation Code §§ 18032 and 24953 require that all individuals and business entities that perform like-kind exchanges of property located in California for property located outside California file an annual information return to report their previously deferred California sourced gain or loss.
If you perform a like-kind exchange as described above and defer any gain or loss under Internal Revenue Code section 1031 in tax years beginning on or after January 1, 2014, then you must file a California Like-Kind Exchange information return.
- Filing frequency
- Due date
- Where to file
- How to calculate your gain or loss
- If you do not file
- Where to obtain the information return
- California source deferred gain
Information return filing information
You must file the California Like-Kind Exchange information return annually:
- As long as you defer the gain or loss.
- If you replace the out of state property with another out of state property as part of another exchange.
- Regardless of your residency or domicile.
- Until you recognize the deferred California sourced gain or loss on a California tax return.
- Until the deferred California source gain or loss is eliminated because of the property owner’s death.
You no longer need to file if you donate the property to a non-profit organization.
So long as you have a filing requirement, your information return is due each year as shown in the table below. The extended due date is applicable to those information returns if the taxpayer obligated to file the information return files that person's California income or franchise tax return, or Limited Liability Company Return of Income, as appropriate, pursuant to the extended due date provisions.
|Taxpayer type||Due date||Extended Due date|
||April 15||October 15|
|Banks and Corporations||15th day of the 3rd month after the close of the fiscal year||7 months after the due date|
File the California Like-Kind Exchange information return with your California income or franchise tax return, or Limited Liability Company Return of Income, as appropriate. If you do not have a California filing requirement, mail the information return to the address listed in the instructions by the due date that would be otherwise applicable to your taxpayer type.
The following examples show how to calculate California source gains.
Personal Income Taxpayer - Sue sold a California relinquished property (RQ) on February 19, 2014. She sold it for $4,500 as part of a 1031 exchange. Her basis in the RQ was $1,000. Sue calculates her gain by subtracting her basis amount ($1,000 from the amount realized, $4,500. Thus, Sue realized a $3,500 gain when she sold the RQ. She buys an out of state property (RP) for $5,000. Her adjusted basis in the replacement property is $1,500 ($1,000 (carryover basis) + $500 (additional cash paid.)) Assuming that there is no "other property" received (aka: boot), she defers her California sourced gain of $3,500. However, under the new California law, she must also annually report deferred California sourced gain on the California Like-Kind Exchange information return. Sue later sells the RP on January 15, 2016 for $4,500. She needs to report the lesser of the deferred California sourced gain or the actual gain from the sale of the replacement property. In Sue's case, she must report and pay tax on the $3,000 California sourced gain on her 2016 California income tax return, since her actual gain on the sale of the replacement property ($3,000) was less than the deferred amount.
Corporate Franchise/Income Taxpayer-Corp A is an apportioning corporation. During the 2015 tax year it conducted a 1031 exchange and relinquished property located in California and replaced it with property located outside California. The gain realized was $2 million, and Corp A defers the gain under Section 1031.
"Business Property"–If the relinquished property was "business property," and Corp A's 2015 California apportionment factor was 55%, then the California-sourced deferred gain amounts to $1.1 million ($2 million x 55%).
"Non-business Property"-If the relinquished property was "non-business property," the entire $2 million gain is California sourced.
In both cases—regardless of whether the property relinquished was "business" or "non-business"—Corp A must file the California Like-Kind Exchange information return.
We may issue a Notice of Proposed Assessment that includes the previously deferred California sourced gain, any applicable penalties, and interest.
The California Like-Kind Exchange information return will be available on our website.