Who Must File
The requirement to file form FTB 3840 applies to all taxpayers, such as individuals, partnerships, LLCs, corporations, estates, trusts, and exempt organizations. The requirement also applies to residents and nonresidents of California. Use the chart below to determine filing requirements.
NOTE: The law requires the owner of the property to file form FTB 3840. When in doubt, file it for any taxpayer that is on the title to the property.
Who Files if Multiple Owners or Change in Ownership
For property owned by multiple owners, things get more complicated. Each owner who files their own tax return must complete their own form FTB 3840 annually. Let's review some special cases in more detail.
What If the Property is Exchanged Again?
You must continue to track and identify replacement properties outside of California until gain is fully recognized. Even if you subsequently exchange the property for a property back in California (see example below).
When to File
The form is due with your tax return, including extensions. For an individual, this would be April 15th or the extended due date of October 15th.
A filer will continue to submit the form annually until the §1031 property is disposed of in a taxable transaction (i.e., §1031 exchanged rental property is sold for cash).
California and the IRS take a special interest in §1031 transactions because of the favorable tax deferral that can be abused . Take the necessary steps to keep excellent records and support your transaction. If you have questions about your §1031 transaction, e-mail Scott at email@example.com
CPA + Partner at Why Blu