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What Are the Rules of a 1031 Exchange in California?

What Are the Rules of a 1031 Exchange in California?

As an investor already in 1031, if you want to continue your activities in California, you need to understand how to arrange everything as favorably as possible. It is necessary to bring everything in line with the laws, as well as to understand approximate prospects for oneself. By reviewing the procedure in a state-specific manner, you can understand what are the specific requirements and what you should avoid. Thus, you will save yourself from unnecessary risks.

If you are interested in the 1031 exchange and want to know the peculiarities of this highly beneficial field in California, we can help you to understand this aspect better. In California, numerous investors are operating successfully and the conditions are not worse than in other states. California law officially recognizes 1031 exchanges and the rules for investors are advantageous. For you, as an investor, the key thing is to understand how to act so you gain benefits from your investing. We will help you to know more about the laws in California and the different opportunities it offers.

In California, the tax deferral strategy known as the 1031 exchange is as popular as in other states. This means, by knowing more about legal peculiarities, you will be able to keep your state of affairs prosperous and you will be able to make it grow. It is not as hard as it may seem, and all of the major benefits of the 1031 exchange are still present.

In the following article, we will discuss the options for performing 1031 exchanges in California, and what you can expect if you decide to expand your investment activities in this area.

What Are the Rules of a 1031 Exchange in California?

In addition to the main rules of the 1031 exchange, in California, there are several additional regulations you should know so your investment practice flourishes. One of the main terms we will discuss is the «like-kind» property that needs to be purchased for the 1031 exchange to be valid. For 1031 investors, it will not be very difficult to follow the rules as they are just an addition to the usual legal details.

In addition to the process of exchange itself, in California, you will need the right facilitators for the 1031 exchange. It means you need to find reliable specialists that will guide you through the procedure. By doing so, you will get the necessary support and will be able to protect your investments.

Like-kind Property in 1031 Exchange

First of all, as an investor in California, you can defer the federal and state income tax using the proceeds of the sale to immediately buy another property. This means that normally, you could not avoid paying this tax, but the state of California allows you to defer it by immediately purchasing another ‘like-kind’ property. By definition given by the IRS, “like-kind” property is any property that is equal in nature or character, regardless of grade or quality. This aspect of regulations gives you a large number of possibilities at once.

In the 1031 exchange, the term “like-kind” concerning property generally implies that any type of property can be exchanged for any other type of property, and that means you can shift your investment focus. For instance, you can focus on low-maintenance investments instead of high maintenance, and save your resources. Or you can move your investments to another state and choose a more convenient location, and avoid tax ramifications.

Low-maintenance investments usually provide investors with many opportunities to benefit, as much less risk will be placed on you. However, even if you just aim at changing your focus, it will be advantageous.

What Benefits Can Investors Expect?

First of all, there will be no strict laws regarding the 1031 exchange. You will be able to continue and expand your investment practice, and get the benefits from the rules for investments present in California. Besides that, as the state officially recognizes this type of exchange, there will be no difficulties in performing and expanding your investment activities legally.

In addition to the above-mentioned factors, the ability to buy the upleg in another state gives you more financial freedom and potential for your investing activities. By using your savvy, you can grow financially and prosper. To sum up, the main benefits for investors that are present in California include:

no strict regulations for 1031 exchange;

official recognition;

the possibility to buy the upleg property in another state.

With these factors, you can easily take your investment practice to another level and enrich your portfolio. Using triple-net lease property only adds up to the benefits of the regular 1031 exchange procedures.

General Rules for 1031 Exchange in California

If you want to perform your activities in California, you are probably interested in knowing about the legal grounds for conducting your investment activities there. California officially recognizes the 1031 exchange, which makes things easier, and also allows you to purchase your upleg in another state, but you need to consider the “Clawback” rule. In general, in this state, you can perform your 1031 exchange in the usual way, but there are some aspects to consider.

The Clawback rule means that all of the capital gains, that are accrued in the state of California, will be subject to the state tax. So it will be until the ultimate sale of the real estate, even if after that, the investor used the 1031 procedure to purchase an out-of-state property. You need to be aware of this rule and consider it carefully when you perform investing activities in the state of California.

According to the regular procedure of the 1031 exchange, the income tax is deferred when you swap one property for another one, instead of paying this tax. Also, there is a specific timeline that should be considered. In California, the procedure stays the same but there are some additional details. The state law also allows you to buy property in another state, which is highly beneficial for you as an investor.

You can also use the 1031 exchange to buy triple-net lease property in the state of California, which is a convenient, low-maintenance option. An NNN lease property is a highly advantageous option for investors seeking to avoid high risks and get a steady flow of cash for 10 to 20 years.

Triple-Net Lease Property

For investors, NNN, or triple-net property, is a terrific idea. It allows you to gain with no risk involved. Using 1031 exchange for a triple-net lease will be your best opportunity to engage in low-maintenance investing. This type of property requires the tenant to pay nearly all the costs of the property and is very comfortable for the investor, especially in the long run. Many 1031 investors favor triple-net lease property as you will have a stable and convenient agreement for a long period of time.

Besides that, investing in triple-net lease property is your chance to get regular, steady flows of cash for 10-20 years. Investing in triple-net lease property and using 1031 exchange will help you benefit in many different ways. One of the significant benefits of it is also the fact that you can diversify your investment portfolio this way, and it will not require much effort. The tenant bears almost all the responsibility which is stipulated in the agreement. Also, it is hugely beneficial financially.

Since Californian law is loyal to investors, you can easily add triple-net lease property to your portfolio and get the most out of it. Even if you stick to your regular investment practices, you will have every opportunity to prosper. Follow the regulations carefully, and grow your investment practice.


The state of California offers 1031 investors huge opportunities to perform and expand their activities. If you want to grow as an investor in this state, you will have every opportunity to do so. The state favors the 1031 exchange and provides official regulations for your investing activities. To get the maximum benefit from it, you should carefully consider all the rules and regulations, and it will be easy for you to get the most out of 1031 exchange deals.

By investing in triple-net lease property, you can get additional advantages from it, as it provides investors with such possibilities as low responsibility and no maintenance required. Consider this opportunity for more benefits. NNN lease property is a huge chance for investors to get maximum benefit with minimum effort required. Even if you do not intend to diversify your portfolio, this investment option is worth your attention.

As the definition of the “like-kind” property implied by Californian law is not strict, you can be safe and benefit from these rules. If you are a 1031 investor, you know the peculiarities of the general procedure and you will easily adapt to the regulations present in California, so read carefully the regulations provided by the Californian law, and, by studying it, you will succeed and get the most out of your investment practice. Invest, progress, and make the most out of it!

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Realized vs Recognized Gain in 1031 Exchange

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