Southern California is a popular place to live with a thriving real estate market. As such, it's also a great place to acquire investment or income properties. If you're looking for a suitable candidate for a 1031 Exchange - look no further! Browse investment properties below, or jump down to read more about 1031 Exchanges in California and how the Jacqueline Thompson Group can help you.

Investment Property Listings

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4612 Seashore Drive, Newport Beach

$4,795,000

4612 Seashore Drive, Newport Beach

0 Beds 0 Baths 0 SqFt Residential Income MLS® # NP22248693

Listing Agent and Office : Janelle File Compass

New
336 Lookout Drive, Laguna Beach

$1,849,000

336 Lookout Drive, Laguna Beach

0 Beds 0 Baths 0 SqFt Land MLS® # NP22247996

Listing Agent and Office : Tim Smith Coldwell Banker Realty

2442 S Coast, Laguna Beach

$9,800,000

2442 S Coast, Laguna Beach

0 Beds 0 Baths 0 SqFt Residential Income MLS® # OC22241500

Listing Agent and Office : Michael Elmore NorthMarq Realty Services, Inc

510 Glenneyre Street, Laguna Beach

$5,595,000

510 Glenneyre Street, Laguna Beach

0 Beds 0 Baths 0 SqFt Residential Income MLS® # OC22234062

Listing Agent and Office : Brian Furstenfeld The Oppenheim Group

1 Crest Circle, Corona del Mar

$2,095,000

1 Crest Circle, Corona del Mar

0 Beds 0 Baths 0 SqFt Residential Income MLS® # NP22238363

Listing Agent and Office : Casey Lesher Coldwell Banker Realty

31565 Eagle Rock Way, Laguna Beach

$2,175,000

31565 Eagle Rock Way, Laguna Beach

0 Beds 0 Baths 0 SqFt Land MLS® # OC22236475

Listing Agent and Office : Lindsay Clark Engel & Voelkers Laguna Beach

409 Dahlia Avenue, Corona del Mar

$3,795,000

409 Dahlia Avenue, Corona del Mar

0 Beds 0 Baths 0 SqFt Residential Income MLS® # NP22236340

Listing Agent and Office : Casey Lesher Coldwell Banker Realty

1140 W Balboa Boulevard, Newport Beach

$2,495,000

1140 W Balboa Boulevard, Newport Beach

0 Beds 0 Baths 0 SqFt Residential Income MLS® # OC22233646

Listing Agent and Office : Philip Immel Pacific Sotheby's International Realty

124 Kings Place, Newport Beach

$5,995,000

124 Kings Place, Newport Beach

0 Beds 0 Baths 0 SqFt Land MLS® # OC22232792

Listing Agent and Office : Suzanne Malerbe RE/MAX Select One

715 Poinsettia Avenue, Corona del Mar

$3,350,000

715 Poinsettia Avenue, Corona del Mar

0 Beds 0 Baths 0 SqFt Residential Income MLS® # NP22226377

Listing Agent and Office : Casey Lesher Coldwell Banker Realty

925 Oriole Drive, Laguna Beach

$2,600,000

925 Oriole Drive, Laguna Beach

0 Beds 0 Baths 0 SqFt Land MLS® # CV22225101

Listing Agent and Office : Weiwen Zheng RE/MAX 888

1 Quivera St, Laguna Beach

$500,000

1 Quivera St, Laguna Beach

0 Beds 0 Baths 0 SqFt Land MLS® # OC22218363

Listing Agent and Office : Danny Nguyen JND Realty

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Real Estate Investment & Tax Transfers

The following should not be taken as tax advice. Anyone considering a 1031 Exchange should speak to a tax professional.

There are many reasons to sell an investment property. However, if that property has appreciated in value, you stand to pay a sizeable sum in tax based on the profit from the sale. 

A 1031 exchange will allow you to defer paying tax on a property that you want to sell, freeing up more money for further investment.

A 1031 exchange might be right for you if you are planning to:

  • Invest in another property with better returns
  • Consolidate your assets so you have fewer properties to manage
  • Diversify your assets by investing in multiple properties of lesser value
  • Offset the impact of property depreciation on your asset's value

What is a 1031 Exchange in California?

A 1031 exchange is a method for deferring the payment of capital gains tax by exchanging one property for another. Because the properties are exchanged, rather than bought and sold in the traditional sense, no capital gains tax is required for the transaction. Tax is only required once the newly acquired property (or properties) is sold. 

The exchange is subject to strict conditions but allows for multiple properties to be exchanged, to either consolidate or diversify assets. Exchanged properties must be investment properties, and similar to each other in kind. For example, multiple-residence income properties, like an apartment building, can be exchanged for another apartment building, even if they are different in grade and quality.  

1031 exchanges require professional assistance. For example, a Qualified Intermediary (QI) is required to take control of the funds that are used to "buy" and "sell" the exchanged properties. The QI is an independent actor in the transaction, taking hold of the funds between the two parties in the exchange.   

What are the Rules on a 1031 Exchange?

A 1031 exchange is subject to strict rules and regulations:

  • Properties must be exchanged rather than bought or sold.
  • The exchanged properties must be commercial or investment properties (not for personal use).
  • The exchanged properties must be similar in kind.

These cover the basic conditions of a 1031 exchange. The complete process and regulations are very complex, requiring assistance from specialized professionals. 

Does California Recognize 1031 Exchanges?

1031 exchanges can be conducted both in and out of California. However, there are some additional state regulations that must be adhered to by Qualified Intermediaries.

Property Depreciation and 1031 Exchanges

A property depreciates by slowly losing its value over time due to general wear and tear. When the property is sold, an estimate of depreciation is used to calculate the amount of profit from the sale. The greater the estimated depreciation, the greater the potential calculated profit, and so the capital gains tax on the property will be higher. 

1031 exchanges can be a way to exchange one property for another (or some combination of properties) with equal value, effectively "resetting" the depreciation on the invested assets. This can lower the capital gains tax that needs to be paid when the final property is sold.  

1031 Exchange versus Opportunity Zone Program

Introduced in 2017, the Opportunity Zone program allows investors to defer some capital gains taxes by investing realized gains in a Qualified Opportunity Fund (QOF) which is then used to invest in Qualified Opportunity Zones (QOZ). There are currently more than 8,700 QOZs in the U.S., identified as areas neglected by traditional investment and requiring revitalization. 

The Opportunity Zone program can be used to defer taxes on capital gains from any type of asset. However, the Opportunity Zone program has a number of limitations:

  • Investments cannot be made directly. They must be made through a Qualified Opportunity Fund.
  • Investments must be made in a Qualified Opportunity Zone.
  • Investments must result in significant improvements to acquired assets. 
  • Tax deferments expire by December 31, 2026

In contrast, tax deferments from 1031 Exchanges can be extended indefinitely.

While both options allow an investor to defer capital gains tax, their precise differences can have significant effects further down the road. As such, it is important to consult an expert when choosing the right vehicle for capital gains tax deferment in California. California has some specific rules applying to 1031 exchanges which should be considered thoroughly.

Rules for 1031 Exchanges in California

  • Properties may be exchanged across state lines.
  • Qualified Intermediaries are subject to California-specific rules regarding where and how much funds are held to facilitate the exchange.
  • These include provisions for extra funds set aside to cover costs associated with errors, omissions, or incomplete sales.
  • Non-residents are required to file an income tax return for sold properties acquired in an exchange for a California property.
  • California law also allows different like-kind conditions for single filers making less than $250K. 

The 1031 Exchange Timeline - How A Real Estate Agent Can Help You

The rules governing 1031 Exchanges state that replacement properties must be identified within 45 days of the initial property being given up and that the replacement must be secured within 180 days. 

That's why it's important to have an experienced real estate agent on your side - someone who can help you find the perfect property (or properties) of the same or equal value to exchange. Jacqueline Thompson is an expert in Southern California luxury real estate, with extensive knowledge and reach in the local investment market. Contact her today for advice or assistance.

Disclaimer

This information is not tax advice and anyone considering a 1031 Exchange should speak to a tax professional. Please refer to State and Internal Revenue Service for updated tax laws and policy changes.

Jacqueline Thompson

Jacqueline Thompson is your Luxury Real Estate Expert.

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