State of CA Legislation would eliminate 1031 Exchange Tax Deferment for Investment Property

The State of California is in a financial pickle, and it looks like legislators are trying to get a little creative to generate new sources of income to balance the budget...

There is a bill, introduced by Assembly member Juan Arambula of Fresno, that seeks to eliminate the state tax benefits of the 1031 Exchange. In very simplistic terms (I'm not a CPA and do not give tax advice) a 1031 Exchange is a tax deferment mechanism for real estate transactions. An investment property owner can sell an investment property and purchase another of 'like kind', and essentially defer taxation of any capital gains (or losses)...so taxpayers do not have to pay a big old tax bill.

AB 2640 eliminates the tax law conformity with federal 1031 Exchanges. In other words, if this bill were to pass, these tax deferred exchanges would still be possible for a taxpayer's federal taxation, but they would not be recognized for tax deferred treatment for California state tax purposes. UGH...call your legislator if you feel it is important to maintain the ability for investment property owners to maintain the ability to do this sort of transaction!