What Are the Requirements for a 1031 Exchange in California? IPX1031

This is Steve Decker with IPX1031 Exchange Services,

and today I’m going to discuss with you the three different requirements that the state of California has is when you’re doing a 1031 exchange.

Number one, it’s really important to note that even though the 1031 industry is unregulated at the federal level, the state of California does require the qualified intermediaries like us carry at least a million dollars worth of bond and a million dollars worth of E and O insurance. Now, thankfully, at IPX, we carry a one hundred million dollar bond and thirty million dollars of ENO insurance per occurrence.

Number If you do not complete a successful 1031 exchange or if you have money left over at the end of the exchange, the state of California requires that we withhold three point three three percent of the leftover funds or of the sales price depending on the set of circumstances That money goes to the California franchise tax board to be used as a credit towards your next year’s taxes. And number three, it’s important to note that the state of California is one of four states now that has what is referred to as a clawback provision. A clawback provision basically notes that if do a 1031 exchange from California into a different state.

The state of California requires that you continue to file an informational tax return with them every single year showing that you still own that other property that you bought out of because of someday years down the road, you decide to sell that property and cash out. At that point, California comes back and they back the taxes that were due while you were doing business in the state of California. For more information, you can visit our website and thank you for spending a few moments of your day with me.

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