1031 tax question

[gooddog]

Hi!

I have a predicament that I have been unable to resolve, as most CPAs are not familiar with how to deal with consecutive 1031 exchanges - especially if one is from California. Hoping there is a CPA on these forums that is familiar with 1031 exchanges and the tax consequences at sale in an instance like this.

A brief history: The numbers are made up to keep this simple - Sold a property (year 2017) in California for 100k and moved it via a 1031 to a property in Florida that had a cost of 150k - again year 2017. The cost basis of the California property was 50k, leaving a 50k gain that wasn't taxed. Now selling the property in Florida for 200k, making a 50k gain on that property - for a total of 100k gain between them of long term capital gains.

I have 110k of capital gains losses from stocks - 90k long term, and 20k short term.



California has a "claw back" provision for the sale of the property there.


OK...Now, I am buying another property in Florida, with the sale of the 1031 Florida property.


I am trying to determine if it would be worth getting out of the 1031 at this point, since there is capital losses (stock) that can be bounced against the 1031 gain at the federal level and state level (still filing taxes from California). My understanding is that that the capital losses will wipe out the 1031 gains at the federal level for the California property and the Florida property, and wipe out the gain on the Florida property for California state taxes - BUT, I will still get taxed by California for the original California house sale because it is "frozen in time" and considered a "realized gain" at time of sale.



California has a way of making things complicated.



If anybody has dealt with this, sure would appreciate some input.


I can do another 1031 exchange, and put the taxes off again, but it would mean that the new place has to be rented out for two years to meet the 1031 requirement - don't want to do that.

Thanks!!

 

[Souschef]

Claw Back

here is some info on Claw Backs. Apparently you are required to file an information return yearly.



https://legal1031.com/1031-exchange-resources/california-claw-back/

 

[Onward]

This is an interesting question. I'm familiar with 1031s and have done them and helped others through them. But this is more of a multi-state tax issue.

The key issue, if I understand correctly, is: I'm a FL resident. Can the capital loss from a sale of stock be used to reduce CA state taxes on capital gains from the sale of CA real estate?

My guess is no (as you suspect in your original post), because capital gain/loss from stock sale is taxable in the state you are a resident. Therefore the cap loss would not even show up on your CA tax return, and there'd be nothing to offset your gain on the real estate there.

But this is just my best guess, and it could be wrong. If I were you I'd be looking for a good CPA, tax attorney, or enrolled agent who's familiar with these situations.

Sorry, that's all I can offer.

 

[gooddog]

The key issue, if I understand correctly, is: I'm a FL resident. Can the capital loss from a sale of stock be used to reduce CA state taxes on capital gains from the sale of CA real estate?

My guess is no (as you suspect in your original post), because capital gain/loss from stock sale is taxable in the state you are a resident. Therefore the cap loss would not even show up on your CA tax return, and there'd be nothing to offset your gain on the real estate there.

But this is just my best guess, and it could be wrong. If I were you I'd be looking for a good CPA, tax attorney, or enrolled agent who's familiar with these situations.

Sorry, that's all I can offer.

Thanks for the reply. I am still filing from California, so still considered a resident there. I have talked to a number of CPAs about this, and most don't even understand the question, much less have an answer. It is so far out of the box, and I didn't even post the more complicated stuff. If there is a CPA who is really good with 1031 exchanges and California 'claw back' type stuff, sure would like to hear from them.

 

[Onward]

If you are filing as a CA resident, then you should be in the clear. The capital loss from stock can be used to offset your deferred (but now realized) capital gain in CA real estate.

gooddog, I sent you a PM.