Tax Deferred Exchange Topics
Tax Deferred Exchange Topics
Important Information for Real Estate Investors
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|Sellers Beware! |
|New “Cal-FIRPTA” law effective January 1, 2003 |
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|On September 11, 2003, AB 2065 (amending Revenue & Taxation Code Section 18662) was signed into law, and its repercussions for real property |
|sales are significant, especially for sellers and exchangers of rental/investment real estate. |
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|Current “Cal-FIRPTA” law in California requires that 3 1/3% of the sales price be withheld from California real property transactions if the |
|seller is a non-resident of California. The new law expands the withholding requirement to California residents, which means that for sales |
|closing on or after January 1, 2003, all individuals who sell California real property and do not qualify for an exemption are subject to the |
|withholding. |
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|The following individual sellers are exempted from AB 2065 if: |
|The total sales price of the property does not exceed $100,000 |
|The property is the seller’s principal residence (IRC section 121) |
|The sale of the property results in a loss for California tax purposes |
|The transaction is a 1031 tax deferred exchange, with the exception of boot |
|The property is involuntarily converted (IRC section 1033) |
|The property was acquired by certain foreclosure methods |
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|The new law also does not apply to a host of non-individual sellers; most notably, Corporations with a permanent place of business in |
|California, Partnerships or LLCs; Irrevocable trusts with a California trustee, or Estates with a California decedent. Grantor |
|(Revocable)Trusts, however, are not considered to be entities for taxable purposes, so such entities will not be automatically exempt for AB |
|2065. |
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|Unlike the previous “Cal-FIRPTA” law, The Franchise Tax Board will not grant individuals a waiver or reduced rate of withholding for sales |
|with small taxable gains: the full 3 1/3% of the total sales price must be withheld even though the sale will only result in a small gain. |
|The waiver process, however, will still be available for non-individuals. |
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|Regarding 1031 exchanges, the new law will not apply if the purchaser or Qualified Intermediary relies on “a written certificate executed by |
|the transferor, certifying under penalty of perjury” that the California real property will be exchanged pursuant to IRC section 1031. If a |
|1031 exchange client does not identify replacement property within 45 days, or purchase identified replacement property within 180 days, from |
|the transfer date of the relinquished property, the Qualified Intermediary will be required to withhold and remit 3 1/3% of the sales price to|
|the Franchise Tax Board before returning the remaining amount of equity to the Exchanger. |
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|The Qualified Intermediary must also withhold and remit 3 1/3% of any cash or cash equivalent (“boot”), that an Exchanger receives in an |
|exchange; however, unlike the previous law, which did not require withholding if boot was below $1500, AB 2065 requires withholding on all |
|levels of boot received. |
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|Although the withholding requirement is technically the buyer’s responsibility, in most cases the title/escrow company closing the transaction|
|will perform the necessary withholding, and provide the transferor/transferee with the new necessary tax forms. |
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|Because AB 2065 applies to all individual California sellers of investment/rental real estate, not just non-residents, Exchangers and their |
|agents should be ready to properly execute and complete an exchange pursuant to IRC Section 1031. Further, sellers who are unsure if they |
|should exchange or “cash out” should consider the effects of AB 2065 before making their decision. |
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|There are many more aspects of AB 2065 that can be discussed. An excellent source of substantive information is available at ftb.. |
|The Franchise Tax Board also invites you to call them at 1-888-792-4900, or e-mail them at nrws@ftb.. |
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|This 1031 Exchange Information is provided in conjunction with: |
|First Guaranty Exchange AND Dennis Crawford, Keller Williams Realty |
|(800) 833-4343 ask for Amy Pool (925) 766-1031 |
|First Guaranty Exchange is a Qualified Intermediary. First Guaranty Exchange, Dennis Crawford, and Keller Williams are precluded from giving |
|tax or legal advice. You must consult with your tax or legal advisor about your specific circumstances. |
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|Dennis Crawford | |
|Real Estate Consultant | |
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|3021 Citrus Circle, Suite 100 | |
|Walnut Creek, CA 94598 | |
|925-766-1031 | |
|Fax 925-906-0702 | |
|denniscrawford@ | |
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Integrity. Trust. Commitment.
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