1031 Exchange in Los Angeles, CA

Yes. Because California conforms to IRC §1031, California investors can complete a DST 1031 exchange — selling appreciated California property and exchanging into a Delaware Statutory Trust (DST) — to defer both California and federal capital-gains tax. The DST does not have to hold California real estate; you can exchange into professionally managed, institutional-grade property anywhere in the country while your California-source gain stays deferred and is tracked on Form 3840. A DST lets California owners trade active landlording for passive, fractional ownership, typically at a lower minimum than buying a whole replacement property outright.

California has no separate capital gains rate — gains are taxed as ordinary income from 1% up to 13.3% (the top rate includes a 1% Mental Health Services surcharge on income over $1 million). Combined with the federal 20% long-term rate and the 3.8% net investment income tax, a top-bracket Californian can face roughly 37% on a real estate gain.

Yes. California conforms to IRC §1031, so a properly structured exchange defers California tax as well as federal tax. If you exchange California property for replacement property outside California, you must file Form 3840 each year to report the deferred California-source gain.

Form 3840 is California's annual like-kind exchange information return. When you defer gain on California property by exchanging into out-of-state property, California tracks that deferred gain and expects Form 3840 filed every year until the gain is recognized — the state's 'clawback.'

Not at the time of the exchange if it qualifies under §1031 — but the California-source gain is deferred, not erased. California can tax it when it is eventually recognized, which is why Form 3840 reporting is required.

DST offerings rotate frequently and are available only to accredited investors, so current Delaware Statutory Trust options for California investors are not published on the site. California residents can exchange into any of Baker 1031's nationwide DST offerings — a DST does not need to be located in California to defer your California and federal gain. Request listings access to see which DST 1031 replacement properties are open this week.