1031 Exchange California Made Simple
Keep more of your money working for you. ALT Financial helps you defer taxes and grow smarter with trusted 1031 exchange services.
How a California 1031 Exchange Works
The process is simple on paper, but the deadlines are strict. Here are the four main steps:
- Sell your property – It must be used for business or investment. Personal homes do not qualify.
- Use a Qualified Intermediary (QI) – The QI holds the sales money. You cannot touch the funds yourself.
- Identify a new property – You have 45 days to name up to three possible properties.
- Close the deal – You must buy the replacement property within 180 days.
If you miss either deadline, the IRS will treat the sale as taxable. Timing is everything in a 1031 exchange.
California’s Extra Rules
California honors the federal exchange but adds its own rules. You must:
- File Form FTB 3840 each year to report deferred gains.
- Keep reporting gains even if the new property is outside California.
- Pay state taxes when you finally sell without reinvesting.
This is known as the “California clawback rule.” In short, you can move money out of the state, but you cannot escape California’s tax reach.
Benefits of a 1031 Exchange in California
Why do investors use this strategy? The benefits are clear:
- Tax deferral – Put all of your proceeds back to work instead of paying the IRS now.
- Portfolio growth – Trade up from smaller rentals to larger, higher-income properties.
- Diversification – Spread risk by turning one property into several.
- Geographic flexibility – Sell in high-cost areas like San Francisco or Los Angeles and buy in markets with better returns.
- Estate planning – Heirs receive a step-up in basis, which often wipes out the deferred tax bill.
Because of these benefits, many investors use the 1031 exchange as part of a long-term wealth plan.