California Proposed Regulation Expands Taxation of Deferred Real Estate Gains for Nonresidents

The California Franchise Tax Board has released proposed amendments to California Code of Regulations Title 18 section 17951-7 addressing how gains and losses from real property are sourced for nonresidents.

Although described in part as clarifications and technical revisions, the proposed amendments are significant and substantive. They materially reshape how California sources both deferred and recognized gain involving California real property, including transactions arising from like kind exchanges under Internal Revenue Code section 1031 and involuntary conversions under Internal Revenue Code section 1033.