1031 Exchange out of California clawback laws -best practices

[Wendy Stclair]

Hi

I'm in the middle of a 1031 exchange out of Cali and trying to minimize how much hassle i bring into my life with this "clawback law"  My thinking is this... can anyone confirm? If i leverage myself as much as possible and buy 6 or so multiple properties paying just the minimal downpayment, I will have many properties i eventually need to pay California tax on.  But if I just get 3 properties (of course with the required equity and boot numbers) i could buy just 3, one mainly with cash. That last one i would own outright and that would satisfy my exchange right? Then to make that money work for me later,  (maybe even soon if i wanted) i could cash out refi that property and buy more properties that would NOT be subject to the exchange.  is this flawed thinking?  thanks for any insights!  

[Al D.]

@Linda West First of all, kudos to your CPA for at least being aware of the requirement since 2014. Chris is correct - it is Form FTB 3840, not federal. I’ve had to provide some of the below evidence to an EA and a CPA - as well as numerous CA investors - who had not been aware of the issue, before they would believe me:

https://www.ftb.ca.gov/about-ftb/newsroom/tax-news/February-2021/compliance-effort-for-FTB-3840-california-like-kind-exchanges-letters-continues.html

https://www.caltax.com/news/podcast/podcast-who-is-responsible-for-filing-form-3840-after-a-like-kind-exchange/