New 1031 Filing Requirements for California
Last month, we talked about new annual information return filing requirements for taxpayers who use IRC Section 1031 to defer gain or loss when selling California property. Assembly Bill 92 added California Revenue and Taxation Code Sections 18032 and 24953 creating a new annual filing requirement for taxpayers who exchange property (RQ) located in California ("CA RQs") for like-kind replacement properties (RPs) located outside California ("Non-CA RPs"). The new California filing requirement takes effect for such exchanges of CA RQs in tax years beginning on or after January 1, 2014. This new information return, which we referred to as a California 1031 Information Return, is still in development; but, here’s an update about the information we may require in that new information return.
The New Information Return
We want to remind taxpayers of the California sourced portion for their previously-deferred gain or loss when the Non-CA RP is ultimately sold. Also, we want to track such California sourced gain or loss that remains to be recognized by such taxpayers. Toward these ends, the new information return will aim to:
- Distinguish California RQs from non-CA RQs.
- Quantify the deferred California sourced gain or loss amount as compared to the total deferred gain or loss amount from all sources;
- Track the allocation of deferred California sourced gain or loss from each exchange to the Non-CA RPs.
What information might be required?
In addition to a summary of data for the entire exchange, some examples of specific information we might request for each RQ and RP include:
- Address or description of the property.
- Parcel number, VIN, or HIN of the property.
- Contract prices for each RQ and RP exchanged.
- California adjusted tax basis for each RQ.
- Debt amounts to which the exchanged properties were subject.
This information will allow us to automate tracking of the California sourced gain or loss and to more efficiently identify those exchanges with the highest likelihood of noncompliance.
Want to comment?
We established an email address for submitting comments you want us to consider as we develop the new information return and reporting guidelines. Email your suggestions or concerns to 1031AnnualFiling@ftb.ca.gov.
In the next few months, we will provide more Tax News articles about the new information return filing requirement and a draft of the new California 1031 information return with opportunities for review and comment before the draft becomes final.
 For purposes of the California 1031 information return filing requirement, the term "taxpayer" or "taxpayers" includes all individuals, limited and general partnerships, estates, trusts, Limited Liability Companies, Limited Liability Partnerships, and all franchise or income tax-paying corporations.