When real property located in California is exchanged (1031 exchange) for property located outside California, the gain realized from the California property that is deferred under section 1031 remains a source of California taxable gain on the sale of the second property .
Didn’t know this?
Neither did many exchangers of California property, with the consequence that all too frequently this tax was not paid, depriving California of significant revenue. In June 2013, the California legislature aimed to plug that revenue leak by addingnew sections 18032 and 24953 to the Revenue and Taxation Code.
Beginning in January 1, 2014, a taxpayer who has exchanged California real property for real property outside of California will have to file an annual report with the Franchise Tax Board until the deferred gain is recognized. Failure to file can lead to immediate adverse tax consequences http://tinyurl.com/k9c3zos