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Old 12-09-2017, 05:46 PM
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1031 Exchange/California's take

I'm an individual planning on doing a 1031 Exchange -- selling a California rental and buying a rental outside California.

I understand that California requires a form to be filed each year thereafter, checking on the status of the like-kind exchange, presumably, since the 1031 Exchange "holds back" California's tax on the capital gains of the sale in California.

1. Am I correct in thinking that after two years, I could convert the new rental to my principal residence, and the IRS will essentially "forget about" its tax on any capital gains that may have been enjoyed from the sale two years prior?

2. Does California generally follow the IRS in this regard? Or is it dead set on getting that 12% tax on any capital gains from that California sale, regardless of the length of time the new property stays a rental? Or even after I die, will California look to collect tax on that capital gain from my heirs?

Thanks for any thoughts on these questions!



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Old 12-10-2017, 02:44 AM
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I'm an individual planning on doing a 1031 Exchange -- selling a California rental and buying a rental outside California. ==========>In CA, CA Like-Kind Exchanges, to report previously deferred CA sourced gains or losses if you do perform like-kind exchanges of CA property for property outside of CA.
?

I understand that California requires a form to be filed each year thereafter, checking on the status of the like-kind exchange, presumably, since the 1031 Exchange "holds back" California's tax on the capital gains of the sale in California.

1. Am I correct in thinking that after two years, I could convert the new rental to my principal residence, and the IRS will essentially "forget about" its tax on any capital gains that may have been enjoyed from the sale two years prior?=====>It depends; aslongas the pty is your primary residence; your PR means that You must live there a majority of the year. It must be a convenient distance from your place of employment.You need documentation to prove your residence. You can use your voter registration, your tax return, etc.however when you dispose of it you must recapture the unrecaPTURED DEPRECAIITON TAKEN PREVIOUSL AND NEED TO SUBTRACT THAT AMOUNT FROM YOUR ltcg. THE SEFC 1250 UNRECAPTUREED DEPRECAITON WILL BE TAXED AS ORDIANRY INCOME Taxed at 25% aslongas your tax bracket is higher than 15%.



2. Does California generally follow the IRS in this regard? Or is it dead set on getting that 12% tax on any capital gains from that California sale, regardless of the length of time the new property stays a rental? Or even after I die, will California look to collect tax on that capital gain from my heirs?=======> In CA, CA conforms to the requirements, exemptions, and limits embodied the federal regulations. capital gains on the sale of a home are included in your income and taxed at whatever tax rate is appropriate to your tax bracket. Currently, these rates vary from 1 to 13.3 percent of income. CA taxes capital gains as ordinary income. That is true. However if a capital gain is excluded from your federal AGI, in many cases it does not result in taxable income for CA.as said, you need to remember that the CA tax process begins by taking your federal AGI and your federal itemized deductions if you otemize deductions on SCh A of 1040, then makes additions and/or subtractions to each as required based on differences between federal and CA tax law. Any adjustments to your federal information are shown on your California Sch CA(540), which details the various additions and subtractions, if any, to your federal data.



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