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!