1031 Exchange across states

10 Replies

Hi BP,

Just wondering about this quick question. I hope to learn more about the 1031 exchange and was wondering if it is possible to sell a property in CA, apply for the 1031 exchange to buy a property in another state. Is this allow? The following document sound like it is possible for most states.

https://www.1031corp.com/1031-exchange-resources/1...

KH

Account Closed

Thanks Karen. Good to know since real estate price around my area (Orange County) is too crazy now. It's time to looking farther away. 


KH

@Khoa Ha , Sec 1031 is a federal statute that all states have to follow on the federal level.  Some states have some nuances when they apply it to the state level but most do also apply it to the state taxes.  No problem at all.  

Just remember that you need to have your qualified intermediary in place prior to the closing of the sale of your old property.

Dave

@Dave Foster,

I will probably reach out to you when they time come. Thanks for the information. 

KH

Pennsylvania requires 1031 exchange participants to pay PA state taxes.  I believe they may be the only one that requires payment at close.  California tracks exchanges, so if you sell and don't exchange, you would be obligated to pay CA tax.  @Dave Foster is this correct?

Mark

Exactamundo @Mark Creason , Every state has to recognize 1031 on the federal level.  PA does not recognize it on the state level so even if you do a 1031 in PA you pay state tax.  In CA they have what is affectionately known as the clawback provision where they track your 1031 out of state so if you ever sell and do not do  another 1031 you pay tax on profit for when the property was in CA.  The state of CA  is very patient waiting for your money.  But as long as you continue to 1031 they'll never get their cut.

Hi @Kevin Felmlee , there actually isn't a statutory holding period.   What the IRS keys in on is that you must have owned the property with the intent of holding for productive use.  If you're a fix n flip person you can't do 1031 on one of those because your intent was not to hold.  It was primarily to resell.  

Most folks are pretty comfortable with anything over a year.  But there could always be specific circumstances where a shorter (or longer) holding period would be justified.

Some things that demonstrate intent are - actual holding period, past history, present business practice, unsolicited offer, extenuating circumstances, correspondence with your professionals.