If you or your clients are contemplating an exchange of California real estate for non-California property, you will be pleased to know that California Senate Bill 1316 has just been laid to rest. SB1316 proposed to deny IRC Section 1031 tax-deferral treatment, at the California state income tax level, to like-kind exchanges in which the relinquished property was located in California, but the replacement property was located in another state. Had the legislation passed, a taxpayer who swapped California property for real estate in Montana would have been able to defer the Federal capital gains tax, but would have had to pay the California state tax on the gain from the sale of the California property. The proposed legislation would not have affected exchanges in which all properties were located in California.

IPX1031® worked with the Federation of Exchange Accommodators, the industry association for Qualified Intermediaries, to oppose SB1316. We pointed out to the legislative sponsors that the economic and constitutional problems with the bill would negate any anticipated increase in tax revenues, resulting in no net benefit to the State of California. Similar legislative proposals have been raised and dropped in several other states for the same reasons.