California 1031 Exchanges and Deferred Gain: Tax Rules for Nonresidents
A Section 1031 exchange can defer gain when California real estate is exchanged for qualifying replacement real estate in another state. The exchange does not necessarily eliminate California's ability to tax the gain when that deferred gain is eventually recognized.
This issue frequently surprises property owners who sell California rental or investment real estate, complete a Section 1031 exchange into property in Texas, Florida, Nevada, or another state, and later move away from California.
California's position is that the source of gain from California real property is determined when the gain is realized. Deferring recognition under Section 1031 generally changes when the gain is taxed. It does not necessarily change the California source character already associated with the original California property.
California also requires annual reporting on Form FTB 3840 when California property is exchanged for qualifying property located outside California. That reporting can continue for years and through subsequent exchanges until the California source deferred gain or loss is eventually recognized.
For broader guidance on rental property sales, depreciation, passive losses, and other investor issues, see my Real Estate Tax Planning resource page.
Current Status of Proposed Regulation Section 17951-7
As of August 21, 2026, Franchise Tax Board Regulation Section 17951-7 remains a proposed regulation. FTB continues to list the tax deferred exchange project among its active draft regulations.
FTB held its fourth Interested Parties Meeting on January 27, 2026. The revised proposal addresses the sourcing of gains and losses involving real property in Section 1031 exchanges and Section 1033 involuntary conversions, including single exchanges, series of exchanges, and transactions involving multiple replacement properties.
The proposed regulation should be distinguished from California law and administrative guidance already in effect. California already requires annual Form FTB 3840 reporting for qualifying exchanges of California property into out of state property, and FTB already takes the position that California source deferred gain can remain taxable by California when it is later recognized.
Key California Tax Takeaways
- A Section 1031 exchange generally defers recognition of qualifying gain rather than eliminating the gain.
- California taxes nonresidents on income from California sources under Revenue and Taxation Code Section 17951.
- FTB takes the position that gain realized from California real property retains its California source character even when recognition is deferred.
- Moving from California to another state does not by itself eliminate California tax on deferred gain attributable to California real property.
- Taxpayers exchanging California real property for qualifying property located outside California generally must file Form FTB 3840.
- Form FTB 3840 is generally required for the exchange year and each subsequent taxable year until the California source deferred gain or loss is recognized.
- The Form FTB 3840 filing obligation can continue even when the taxpayer is no longer otherwise required to file a California income tax return.
- A subsequent Section 1031 exchange of the out of state replacement property does not automatically end the Form FTB 3840 reporting obligation.
- California and federal adjusted basis can differ, which can cause the California deferred gain to differ from the federal deferred gain.
- Beginning with taxable years on or after January 1, 2025, California generally conforms to the current federal limitation of Section 1031 to real property.
- Proposed Regulation Section 17951-7 would provide more detailed sourcing rules for complex exchange chains and multiple replacement properties if finalized.
Does California Tax Section 1031 Gain After You Move Out of State?
It can.
California Revenue and Taxation Code Section 17951 generally taxes a nonresident only on gross income from California sources. Real property located in California can produce California source gain even when the owner is not a California resident.
When a taxpayer exchanges California real property for property located outside California, FTB's published position is that the source of the gain or loss is determined when the gain or loss is realized. If recognition is deferred under Section 1031, the California source character is preserved until the gain is eventually recognized.
The taxpayer's later state of residence does not by itself change that original source.
Changing Residency and Changing the Source of Income Are Different Concepts
Becoming a resident of Texas, Florida, Nevada, Washington, or another state can change which income California may tax based on residency. It does not automatically change the source of gain already associated with California real property.
The residency analysis and the source of income analysis should therefore be performed separately.
A Section 1031 Exchange Defers Recognition, Not California Source
The distinction between realization, recognition, and source is central to understanding the California rule.
| Concept | General Meaning |
|---|---|
| Realized gain | The economic gain calculated when property is exchanged or disposed of. |
| Recognized gain | The portion of realized gain currently included in taxable income. |
| Deferred gain | Realized gain that is not currently recognized because an applicable nonrecognition rule applies. |
| Source | The jurisdiction to which the income or gain is attributed for state income tax purposes. |
A qualifying Section 1031 exchange can defer recognition of gain. California's sourcing rules address a different question: how much of the gain is attributable to California when it is eventually recognized.
A federal tax deferral therefore should not be confused with the elimination of California source income.
Example: California Rental Property Exchanged for Texas Property
California to Texas Section 1031 Exchange
Assume a taxpayer owns California rental property with an adjusted California tax basis of $400,000.
In 2026, the property is exchanged when its value is $900,000. Ignoring transaction costs and other adjustments for purposes of this simplified example, the taxpayer realizes a $500,000 gain.
The taxpayer completes a qualifying Section 1031 exchange into Texas rental property and does not currently recognize the $500,000 gain.
The taxpayer later becomes a Texas resident.
Several years later, the Texas replacement property is sold in a fully taxable transaction. The taxpayer's move to Texas does not by itself convert the $500,000 of deferred gain attributable to the original California property into Texas source gain.
Under FTB's existing sourcing position, the California source deferred gain remains potentially taxable by California when it is recognized, subject to the actual gain recognized and the applicable California calculation.
FTB Publication 1100 provides a similar example involving a Texas resident who exchanges California property for Texas property and later sells the Texas replacement property. FTB treats the deferred gain attributable to the California property as California source when it is subsequently recognized.
What Is California Form FTB 3840?
Form FTB 3840, California Like Kind Exchanges, is the annual information return California uses to track California source deferred gain or loss when California property is exchanged for qualifying property located outside the state.
Revenue and Taxation Code Sections 18032 and 24953 establish the annual information reporting requirement for applicable taxpayers.
The filing requirement applies to exchanges occurring in taxable years beginning on or after January 1, 2014.
Who Must File Form FTB 3840?
Under the current FTB instructions, taxpayers conducting a Section 1031 exchange generally must file Form FTB 3840 when California real property is exchanged for qualifying like kind property located outside California.
The requirement applies regardless of the taxpayer's residence status or commercial domicile. It can apply to individuals, estates, trusts, partnerships, corporations, and limited liability companies. When a disregarded entity holds the property, the owner generally files the form.
Do Nonresidents Have to File Form FTB 3840?
Yes, when the filing requirements are otherwise satisfied.
A taxpayer does not avoid Form FTB 3840 merely because the taxpayer was already a nonresident when the California property was exchanged.
Do You File Form FTB 3840 Only Once?
Generally, no.
Form FTB 3840 is generally required for the taxable year of the original exchange and for each subsequent taxable year until the California source deferred gain or loss has been recognized.
| Stage | Form FTB 3840 Treatment |
|---|---|
| Year California property is exchanged for out of state property | Initial Form FTB 3840 |
| Later year while deferred gain remains outstanding | Annual Form FTB 3840 |
| Previously filed form requires correction | Amended Form FTB 3840 |
| California source deferred gain or loss is fully recognized | Final Form FTB 3840 with the required explanation |
What if You Are Not Otherwise Required to File a California Return?
The Form FTB 3840 obligation can continue even if the taxpayer does not otherwise have a California income tax return filing requirement for that year.
Under FTB's current instructions, a taxpayer who is not otherwise required to file a California return generally completes and signs Form FTB 3840 and files it separately as an information return.
Moving Out of California Does Not End the Annual Reporting Requirement
A taxpayer who completes a California to out of state Section 1031 exchange and then becomes a nonresident should not assume that California reporting is finished.
Form FTB 3840 can remain an annual filing requirement for many years after the taxpayer leaves California.
When Can You Stop Filing Form FTB 3840?
The filing generally continues until the California source deferred gain or loss associated with the exchange has been recognized.
When the remaining California source deferred gain or loss is fully recognized, the taxpayer generally files a final Form FTB 3840 and attaches an explanation describing how the deferred amount was recognized.
The answer can become more complicated when the original California property was exchanged for multiple replacement properties or when replacement properties are sold or exchanged at different times.
What Happens if Only One of Several Replacement Properties Is Sold?
Form FTB 3840 allocates California source deferred gain among replacement properties when more than one replacement property is received.
FTB's current guidance provides that when one replacement property is later sold in a taxable transaction, the taxpayer removes that property from Form FTB 3840, reports the applicable California source gain, and continues reporting the remaining replacement properties and associated deferred California gain.
The sale of one replacement property therefore does not necessarily end the reporting obligation associated with the other replacement properties.
What Happens if the Replacement Property Is Exchanged Again?
A second Section 1031 exchange does not automatically eliminate the California deferred gain or the annual reporting obligation.
FTB's current like kind exchange guidance specifically states that the Form FTB 3840 obligation continues when an out of state replacement property is exchanged for another property.
The taxpayer generally removes the exchanged property from the Form FTB 3840 associated with the prior exchange and files another Form FTB 3840 for the subsequent exchange. The applicable California source deferred gain is carried into the reporting for the new replacement property.
Example: California to Texas to Florida
Assume a taxpayer exchanges California rental property for Texas rental property in 2026 and properly reports the California source deferred gain on Form FTB 3840.
In 2029, the taxpayer exchanges the Texas property for Florida rental property in another qualifying Section 1031 exchange.
The second exchange does not automatically eliminate the California source deferred gain from the original California property. Under FTB's current reporting guidance, the taxpayer continues tracking that California deferred gain through the subsequent exchange.
If the Florida property is ultimately sold in a taxable transaction, California sourcing must still be determined for the deferred gain traceable through the exchange chain.
Why Multiple Section 1031 Exchanges Create a More Difficult California Calculation
A simple California property exchanged for one out of state property presents a relatively straightforward sourcing concept.
A series of exchanges can be more difficult because property can appreciate or decline in value after it leaves California and additional deferred gain can arise in other states.
Consider a chain such as:
California property → Texas property → Arizona property → Florida property → taxable sale
The final federal gain can reflect gain accumulated during several stages of ownership. The California tax question is how much of the final recognized gain is attributable to California sources rather than to appreciation or loss arising while replacement properties were located elsewhere.
This is one of the principal issues addressed by proposed Regulation Section 17951-7.
What Would Proposed Regulation Section 17951-7 Do?
FTB states that the proposed regulation is intended to provide greater clarity and consistency concerning California sourcing of gains and losses from deferred real property transactions, particularly for nonresidents.
The January 2026 draft addresses several categories of transactions.
Single Exchange of California Property for Out of State Property
For a single exchange in which the relinquished property is located in California and the replacement property is outside California, the proposed rule provides that when gain is later recognized for federal purposes, California source gain is generally the lesser of:
- The California source deferred gain from the original exchange
- The gain recognized for federal income tax purposes in the later disposition
The January 27, 2026 FTB meeting summary states that this basic lesser of rule remains in the revised proposal.
Out of State Property Exchanged for California Replacement Property
The proposal also addresses the reverse situation: property outside California is exchanged for replacement property located in California.
The proposed calculation seeks to identify gain or loss arising from the California replacement property itself by considering the property's value at disposition, its acquisition amount, and applicable basis adjustments while the replacement property is held.
This prevents the analysis from simply treating gain that arose before the property entered California as California source.
Series of Exchanges
The proposed regulation contains detailed rules for exchange chains involving property in multiple jurisdictions.
The January 2026 revision separates the calculation of gains and losses from the sourcing of those gains and losses. When the total deferred gains associated with properties in several states exceed the final federal recognized gain, the proposal can require a proportional allocation among jurisdictions.
Multiple Replacement Properties
The January 2026 proposal also addresses exchanges in which one relinquished property is exchanged for several replacement properties.
Under the proposed approach, calculated deferred gain or loss is generally divided among the replacement properties based on their relative fair market values, with adjustments for applicable nonqualifying property used in acquiring the replacement property.
The Regulation Is Not Final
The detailed formulas in proposed Regulation Section 17951-7 should not be described as final California regulations.
As of August 21, 2026, FTB continues to identify Regulation Section 17951-7 as a draft regulation project. Existing statutes, current forms, published FTB guidance, and applicable federal conformity rules remain the controlling framework while the regulatory process continues.
How Would the Proposed Rule Work in a Series of Exchanges?
FTB Proposed Regulation Example
The January 2026 draft includes a series of exchanges beginning with California property purchased for $50 and exchanged when worth $150, creating $100 of deferred California gain.
The taxpayer later exchanges property in another state after an additional $150 of gain has arisen outside California.
The final replacement property is ultimately disposed of in a transaction producing $120 of federal recognized gain.
Because the total deferred gains associated with California and the other states exceed the final $120 federal gain, the proposed proration rule allocates the recognized gain among the jurisdictions.
In the FTB example, California's $100 portion of the total $250 gain pool represents 40 percent of the total. California source gain is therefore calculated as 40 percent of the $120 federal recognized gain, or $48.
This example illustrates why the proposed regulation is most significant for complicated multistate exchange histories. The proposal is attempting to distinguish California gain from appreciation or loss associated with replacement properties in other states rather than treating the final federal gain as though it arose entirely in one jurisdiction.
Can California and Federal Basis Be Different?
Yes.
Form FTB 3840 requires the taxpayer to determine the adjusted basis of relinquished property using California tax law.
FTB expressly notes that California adjusted basis can differ from federal adjusted basis due to differences involving depreciation methods, special credits, accelerated deductions, and other federal and California conformity differences.
This is particularly important for real estate investors who have used accelerated depreciation or cost segregation.
Do Not Assume the Federal Form 8824 Gain Is Automatically the California Gain
Federal and California starting basis, accumulated depreciation, and deferred gain can differ. Form FTB 3840 therefore requires a California calculation rather than merely copying every federal amount without review.
Why Cost Segregation Can Increase the Importance of the Basis Reconciliation
Federal and California depreciation rules have differed in important respects over time. When a property has a cost segregation study or accelerated federal depreciation, the fixed asset schedule should be reconciled separately for California.
The basis difference can continue into the replacement property after a Section 1031 exchange and can affect the amount of California source deferred gain ultimately recognized.
For more information about depreciation related disposition issues, see Depreciation Recapture on Rental Property .
Did California's Section 1031 Rules Change Beginning in 2025?
California's federal conformity was updated by Senate Bill 711.
In general, for taxable years beginning on or after January 1, 2025, California conforms to the Internal Revenue Code as of January 1, 2025, subject to California modifications and exceptions.
Current California guidance therefore limits like kind exchange treatment under Section 1031 to real property for taxable years beginning on or after January 1, 2025, consistent with current federal law.
California had different rules for certain personal property exchanges during earlier years. Taxpayers with older exchange histories should therefore determine which California conformity rules applied in the year of the original transaction rather than applying the current rule retroactively.
The January 2026 revision of proposed Regulation Section 17951-7 similarly limits the proposed regulation to real property in response to California's updated conformity.
What Happens if Form FTB 3840 Was Never Filed?
A missing Form FTB 3840 does not erase the underlying California source deferred gain.
Revenue and Taxation Code Sections 18032 and 24953 authorize FTB, when a taxpayer fails to file the required information return and also fails to file a required California tax return, to estimate net income from available information and propose tax, interest, and applicable penalties.
The current Form FTB 3840 instructions similarly warn that FTB can issue a proposed assessment based on California source deferred gain when the applicable filing requirements are not met.
If annual Forms FTB 3840 are missing, the exchange history should be reconstructed using the original closing statements, federal Forms 8824, depreciation schedules, prior California tax returns, replacement property records, and any subsequent exchange documents.
Reconstruct the Exchange Chain Before the Final Property Is Sold
A taxpayer who discovers missing Forms FTB 3840 shortly before a replacement property sale should first establish the original California basis, deferred California gain, replacement properties received, later exchanges, and remaining California source deferred gain.
Waiting until after the final sale can make the reconstruction more difficult, particularly when several properties or exchange years are involved.
Does California Tax All of the Gain When the Out of State Property Is Sold?
Not necessarily.
California's claim is generally to the portion of recognized gain that remains attributable to California sources, not automatically to every dollar of appreciation that occurs after the replacement property leaves California.
In a simple outbound exchange, existing FTB guidance generally focuses on the California source deferred gain associated with the relinquished California property, limited by the gain recognized when the replacement property is eventually disposed of.
More complex exchange chains can require allocation among California and other jurisdictions. The proposed Regulation Section 17951-7 is intended to provide more detailed rules for those calculations.
Example: California Gain Versus Later Out of State Appreciation
Assume a taxpayer has $300,000 of California source deferred gain when California property is exchanged for Texas property.
The Texas property later appreciates substantially before being sold.
California does not automatically obtain source jurisdiction over all appreciation that arose from owning Texas real property merely because the Texas property was acquired in a Section 1031 exchange.
The California calculation focuses on the California source amount preserved through the exchange and the amount ultimately recognized, subject to the applicable sourcing rules.
What if Out of State Property Is Exchanged Into California?
The opposite transaction presents a different sourcing question.
FTB Publication 1100 provides an example in which a Nevada resident exchanges Nevada business property for California business property and later sells the California property in a taxable transaction.
The gain attributable to appreciation in the California replacement property can be California source, while gain that arose before the property entered California requires separate consideration.
Proposed Regulation Section 17951-7 contains a specific framework for calculating the California portion of gain or loss in this situation.
Does Proposed Regulation Section 17951-7 Also Address Section 1033?
Yes.
The January 2026 proposal addresses real property gains and losses involving both Section 1031 exchanges and Section 1033 involuntary conversions.
Section 1033 generally addresses qualifying involuntary conversions, such as certain property destroyed, stolen, seized, requisitioned, condemned, or disposed of under threat of condemnation.
The proposed regulation would provide California sourcing rules when gain or loss associated with California real property is deferred through one of these transactions and later recognized.
Form FTB 3840 Is a Section 1031 Reporting Form
The fact that proposed Regulation Section 17951-7 also addresses Section 1033 should not be read as converting Form FTB 3840 into a general Section 1033 information return.
Form FTB 3840 and Revenue and Taxation Code Sections 18032 and 24953 specifically address qualifying Section 1031 exchanges.
How Does This Differ From Selling California Property After Moving Out of State?
A direct taxable sale and a Section 1031 exchange present related but different issues.
If a taxpayer moves out of California and later directly sells California real estate, the gain generally remains California source because the property itself is located in California. California real estate withholding rules can also apply at closing.
A Section 1031 exchange adds another layer. The taxpayer may have disposed of the California property years earlier without recognizing all of the gain, and the replacement property may now be located in another state. The tax analysis must therefore trace the deferred California source amount through the exchange history.
For the direct sale rules, see Selling California Real Estate After Moving Out of State: Tax and Withholding Rules for Nonresidents .
What Records Should Be Kept After a California Section 1031 Exchange?
Deferred California gain can remain relevant for many years. The supporting records should therefore be retained through the entire exchange chain.
Important records can include:
- The acquisition closing statement for the original California property
- The original California tax basis calculation
- Fixed asset and depreciation schedules
- Cost segregation studies
- Capital improvement records
- Closing statements for the relinquished California property
- Qualified intermediary statements
- Federal Forms 8824
- Initial, annual, amended, and final Forms FTB 3840
- California depreciation and basis reconciliations
- Closing statements for each replacement property
- Documents from every subsequent Section 1031 exchange
- Records showing allocations among multiple replacement properties
- Residency records when the taxpayer changes states
- Prior California income tax returns related to recognized deferred gain
Reconstructing these amounts decades later can be difficult if the original Form 8824, Form FTB 3840, depreciation schedule, and closing statements were not retained.
What Should Be Reviewed Before Selling the Final Replacement Property?
Before selling replacement property that traces back to a California Section 1031 exchange, a useful tax review should generally determine:
- The date and details of the original California exchange
- The original California source deferred gain or loss
- Whether every required Form FTB 3840 was filed
- Whether the deferred amount was properly allocated among multiple replacement properties
- Every subsequent Section 1031 exchange in the chain
- The current federal adjusted basis
- The current California adjusted basis
- Federal and California depreciation differences
- Any cost segregation components
- Prior partial recognition of California source deferred gain
- The California deferred gain that remains outstanding
- The taxpayer's current state of residence
- The expected federal gain on the final disposition
- The portion expected to remain California source
- Section 1231 and depreciation recapture consequences
- Suspended passive losses associated with the property
- Federal and California estimated tax requirements
Review the Exchange History Before the Final Sale
The final property may be located thousands of miles from California, but the original California deferred gain can still be relevant.
A preclosing review allows the federal and California basis schedules, Forms 8824, Forms FTB 3840, depreciation records, and subsequent exchange history to be reconciled before the gain is reported.
Frequently Asked Questions About California 1031 Exchanges and Deferred Gain
Does California tax Section 1031 exchange gain after I move out of state?
California can tax deferred gain attributable to California real property when that gain is later recognized, even if the taxpayer has become a nonresident. FTB's position is that source is determined when the gain is realized and is preserved when recognition is deferred under Section 1031.
Does a Section 1031 exchange eliminate California income tax?
Generally, no. A qualifying Section 1031 exchange can defer recognition of qualifying gain. It does not necessarily eliminate California source gain associated with the relinquished California property.
What is California Form FTB 3840?
Form FTB 3840 is California's information return for applicable Section 1031 exchanges of California property for qualifying replacement property located outside California. The form tracks the California source deferred gain or loss and the replacement property to which it is allocated.
Who must file Form FTB 3840?
Taxpayers who complete an applicable Section 1031 exchange of California real property for qualifying property outside California generally must file Form FTB 3840 regardless of residence status or commercial domicile. The filing rules apply to individuals and various business and fiduciary entities.
Do I have to file Form FTB 3840 every year?
Generally, yes. Form FTB 3840 is generally required for the taxable year of the exchange and each subsequent taxable year until the California source deferred gain or loss has been recognized.
When can I stop filing Form FTB 3840?
The annual filing generally ends when the California source deferred gain or loss has been fully recognized. The taxpayer generally files a final Form FTB 3840 explaining how the deferred amount was recognized.
What happens if I never filed Form FTB 3840?
A missing form does not eliminate the California source deferred gain. Revenue and Taxation Code Sections 18032 and 24953 provide assessment authority in specified circumstances when required information and income tax returns are not filed. Missing Forms FTB 3840 should be addressed by reconstructing the original exchange and subsequent exchange history.
What happens when California property is exchanged for Texas or Florida property?
A qualifying Section 1031 exchange can defer the gain, but the deferred amount attributable to the original California property can remain California source. Moving to Texas or Florida and holding replacement property there does not by itself eliminate the California source amount.
Can California tax gain when the final replacement property is outside California?
Yes. FTB's existing position is that California source gain realized on the original California property can retain its source while recognition is deferred. When the out of state replacement property is eventually disposed of in a taxable transaction, California can tax the applicable California source portion of the recognized gain.
What if the replacement property is exchanged again?
A subsequent Section 1031 exchange does not automatically end the California reporting obligation. FTB currently instructs taxpayers to continue tracking the California source deferred gain through later qualifying exchanges until the amount is recognized.
How does California calculate gain after multiple Section 1031 exchanges?
Existing FTB guidance requires continued tracking of California source deferred gain through subsequent exchanges. Proposed Regulation Section 17951-7 would add detailed sourcing rules for series of exchanges involving property in multiple states, including proportional allocation rules in certain situations. The proposed regulation is not final as of August 21, 2026.
Can California and federal basis be different?
Yes. California depreciation, accelerated deduction, credit, and conformity rules can produce a California adjusted basis different from federal adjusted basis. Form FTB 3840 requires a California basis calculation when applicable.
What does proposed Regulation Section 17951-7 change?
The proposal is intended to provide more detailed rules for determining California source gain or loss from real property involved in Section 1031 exchanges and Section 1033 involuntary conversions. It addresses single exchanges, series of exchanges, replacement property located in California, and multiple replacement properties.
Is California Regulation Section 17951-7 final?
No. As of August 21, 2026, FTB continues to list Regulation Section 17951-7 among its active draft regulation projects. The current article should therefore distinguish the proposed regulatory formulas from California statutes and FTB reporting requirements already in effect.
How does California treat Section 1033 involuntary conversions?
Proposed Regulation Section 17951-7 also addresses California sourcing when gain or loss involving real property is deferred under Section 1033. Form FTB 3840, however, is the information return specifically associated with applicable Section 1031 exchanges under Revenue and Taxation Code Sections 18032 and 24953.
Final Takeaway
A Section 1031 exchange can defer a substantial gain from California real estate, but deferral should not be confused with elimination of California source income.
California requires applicable taxpayers who exchange California property for out of state replacement property to track the deferred gain through Form FTB 3840. That reporting can continue long after the taxpayer has moved out of California and can continue through subsequent Section 1031 exchanges.
The calculation becomes more complex when the taxpayer has multiple replacement properties, several successive exchanges, federal and California basis differences, or appreciation and losses arising in several states.
Proposed Regulation Section 17951-7 is intended to provide more detailed sourcing rules for these situations. As of August 21, 2026, the regulation remains proposed and should not be treated as final law.
Before the final replacement property is sold, the entire exchange history should be reviewed, including Forms 8824, Forms FTB 3840, California and federal basis schedules, depreciation, later exchanges, and any portions of the original California deferred gain already recognized.
Review California Deferred Gain Before Selling Replacement Property
I assist real estate investors and former California residents with California deferred gain and Form FTB 3840 reviews. The analysis can include prior Forms 8824, Forms FTB 3840, exchange closing statements, California and federal basis differences, depreciation schedules, cost segregation, multiple replacement properties, subsequent Section 1031 exchanges, residency changes, and the California source gain remaining in the exchange chain.
The objective is to determine the California reporting history and expected California tax exposure before the final replacement property is sold while the transaction and estimated tax requirements can still be planned.
Schedule a ConsultationThis article provides general federal and California income tax information. California sourcing of deferred gain depends on the original property, exchange history, federal and California basis, depreciation, replacement property, subsequent exchanges, residency history, amount ultimately recognized, and other facts. Proposed Regulation Section 17951-7 is not final as of August 21, 2026.
