California 1031 Exchange Guide for Property Sellers

Last updated November 13, 2026. Reviewed by the Cash Home Buyers CA team. Figures and rules come from the IRS and the California Franchise Tax Board; sources are at the end. This is general information, not tax advice.

A 1031 exchange lets you defer federal tax on the gain when you trade business or investment real estate for other business or investment real estate. You must name the replacement property in writing within 45 days and receive it within 180 days. California adds a reporting rule if the new property is outside the state. A home you live in does not qualify.

1031 exchange rules at a glance

What is a 1031 exchange?

Section 1031 of the Internal Revenue Code lets you avoid recognizing gain when you exchange business or investment property solely for like-kind property.

The IRS says that if you also receive cash or other property, called boot, you recognize gain up to the amount of boot, and you can never recognize a loss. Since the Tax Cuts and Jobs Act, the rule covers real property only. Equipment, vehicles, artwork and intangible assets no longer qualify.

Real properties are generally like-kind whether improved or unimproved, so a rental house can be exchanged for an apartment building, a store or vacant land. The IRS also states that the property you trade and the property you receive must not be held primarily for sale. The tax is deferred, not erased: your basis carries over into the new property.

Does my California home qualify for a 1031 exchange?

A house you live in does not. The IRS requires that you hold both properties for productive use in a trade or business or for investment, and it names your home as personal use. Owners of a primary home have a different tool.

You can exclude up to $250,000 of gain from income, or $500,000 on a joint return, if you owned and used the home as your residence for at least 24 months of the 5 years before the sale. Our California capital gains home sale guide walks through that rule.

Rentals, small apartment buildings, commercial buildings and land held for investment can qualify. A rental you once lived in can raise mixed-use questions, so confirm the facts with a tax professional before you rely on an exchange. If you inherited the property, read about the stepped-up basis first, since a basis reset can leave little gain to defer.

The 45-day and 180-day deadlines

Both clocks start the day you transfer the property you give up. Within 45 days you must identify the replacement property in writing. If you receive the replacement before day 45 ends, the IRS treats the identification requirement as met. You must then receive the replacement property by the earlier of the 180th day or the due date, including extensions, of the tax return for the year of the transfer.

That second limit catches people. A sale late in the year can have fewer than 180 days if you do not extend your return. Use the calculator to see both dates for a given closing.

How a 1031 exchange works step by step

1. Plan before you sign the sale. The exchange has to be set up before closing, not after. Tell your escrow officer and tax advisor early.
2. Close the sale. The day the property transfers starts both clocks.
3. Identify replacement property in writing within 45 days.
4. Close on the replacement property by day 180 or your return due date, whichever is earlier.
5. Report it. File federal Form 8824 with your return, and California Form FTB 3840 if the replacement is out of state.

IRS Publication 544 covers special rules for exchanges that use qualified intermediaries and for exchanges of multiple properties. We are not exchange facilitators, so the intermediary and the identification rules are a conversation for you and your tax professional.

California rules: Form FTB 3840 and out-of-state exchanges

The FTB instructions say any taxpayer who exchanges California real property for like-kind property outside California must file Form FTB 3840, regardless of residence status. You file for the year of the exchange and for each later year, generally until the California-sourced deferred gain is recognized on a California return.

If you skip the form and do not file a return, the FTB may estimate your income and assess tax, penalties and interest, according to its instructions.

In plain terms, deferral does not take the gain out of California’s reach. Moving the money to another state does not stop the state from taxing California-sourced gain when you finally sell. California also withholds on some sales; see our Form 593 withholding guide.

What taxes does a 1031 exchange defer?

The IRS taxes long-term gain, meaning an asset held more than one year, at 0, 15 or 20 percent depending on taxable income. A portion of gain from real property called unrecaptured section 1250 gain is taxed at up to 25 percent. A properly structured exchange defers these federal taxes.

California has its own tax rules for gain, so confirm current rates with the FTB or a tax professional. Also see how Prop 13 reassessment can raise the property tax on the replacement property.

How to sell a house in California when you are planning a 1031 exchange

If the house is a rental and you want to roll the money into another property, timing is the whole game. A traditional sale needs a buyer’s loan approval, appraisal and inspections, and any of them can push closing past a date you cannot move. A cash sale removes the loan, so closing can be set ahead of time.

• Tell us the closing date you need and whether a tenant is in the home. We buy tenant-occupied houses as-is.
• Ask your intermediary to be named in the purchase paperwork before closing.
• Budget for California seller closing costs. Our cash offers carry no commissions or fees.
• Keep the written identification notice and dates for Form 8824 and Form FTB 3840.

We buy houses across the state, including Los Angeles, San Diego, Sacramento, San Jose, San Francisco and Fresno. Selling a California rental on a deadline? Call (424) 435-2326 or request a cash offer. No cost, no obligation.

1031 exchange FAQ

Can I do a 1031 exchange on my California home?

Only if you hold it for business or investment, such as a rental. The IRS says neither the property you give up nor the property you receive may be used for personal purposes, such as your home.

A home you live in may qualify for the home-sale exclusion instead: up to $250,000 of gain, or $500,000 on a joint return, if you owned and lived in it at least 24 months of the last 5 years.

How long do I have to identify a replacement property?

45 days after you transfer the property you gave up, in writing. You must then receive the replacement property by the earlier of 180 days after the transfer or the due date, including extensions, of your tax return for that year.

Does a 1031 exchange work for property in another country?

No. The IRS states that real property in the United States and real property outside the United States are not like-kind to each other.

Does California tax a 1031 exchange into another state?

California can. A taxpayer who exchanges California real property for like-kind property outside California must file Form FTB 3840 for the year of the exchange and each later year, generally until the California-sourced deferred gain is recognized. This applies regardless of residency.

Can a flipper or dealer use a 1031 exchange?

No. Property held primarily for sale, such as inventory sold to customers, does not qualify.

Can I sell for cash and still do an exchange?

Only if the sale is structured as an exchange before closing, usually with a qualified intermediary holding the proceeds. A cash buyer can close on a fixed date, which makes the 45- and 180-day clocks easier to plan, but the exchange paperwork is a separate step with your tax advisor.

Sources

• IRS: Like-kind exchanges, real estate tax tips
• IRS Publication 550: Investment Income and Expenses
• IRS Publication 544: Sales and Other Dispositions of Assets
• IRS Topic 701: Sale of your home
• IRS Topic 409: Capital gains and losses
• FTB: Instructions for Form FTB 3840
• FTB: Form 3840, California Like-Kind Exchanges

This guide is general information, not tax or legal advice. Talk to a CPA or exchange professional before you sign a sale.