Follow up letters for FTB 3840, California Like-Kind Exchanges, going out soon June 2019 Tax News
Beginning in February 2019, we mailed letters to taxpayers who either failed to file or filed an incomplete California Like-Kind Exchanges (FTB 3840) for the 2016 tax year. This letter requested taxpayers to file FTB 3840 to include California-specific details not previously provided. Beginning in June 2019, we will be mailing follow-up letters to those taxpayers who did not respond to our first request. The follow-up letter will have a 30-day response time. Failing to respond to this letter may result in additional contact from the Audit Division.
As we mentioned in both the October 2018 and January 2019 editions of Tax News, California requires taxpayers to file form FTB 3840, California Like-Kind Exchanges, when they exchange real property located in California for like-kind property located outside of California. This requirement began with tax years beginning on or after January 1, 2014.
FTB 3840 must be filed in the year that the like-kind exchange occurs and every year thereafter as long as the gain or loss is deferred. The reporting generally continues until one of the following occurs:
- The deferred California sourced gain or loss is recognized on a California return.
- The replacement property is transferred through inheritance, eliminating the deferred California sourced gain or loss.
- The replacement property is donated to a non-profit organization.
The Instructions for FTB 3840 require that the federal amounts reported on Part III, lines 12 through 25 of federal Form 8824 be entered on FTB 3840, Part II, line 7 through 20, respectively. In addition, Schedule A, Parts I, II, and III require California-specific information.
Common errors that we find on FTB 3840 include:
- Side 2 is transmitted blank and contains no data
- A box on Question B has not been checked indicating whether the FTB 3840 is an initial, amended, annual, or final form
- Vague, incomplete, or omitted property descriptions. FTB 3840 instructions require that the full address (or assessor's parcel number, county, and state) must be reported
- Missing ownership percentages
- Omitted California source deferred gain (Schedule A, Part I, Line 8)
Search our website for FTB 3840 for additional information.