Proposed California Real Estate Tax Increase Restricting 1031 now in the Senate Appropriations Committee
California SB1316
By: Larry Laidlaw, CES
This bill was earlier proposed as AB 2640, requiring CA taxpayers in a 1031 exchange to recognize and pay CA income tax ending the long standing conformity between CA State law and Federal tax law. Its passage would have made CA less investor friendly, something other states do not practice. Aggressive lobbying by FEA stopped it in its tracks.
It now has sprouted new legs under SB1316. The Senate Revenue & Taxation Committee unanimous approved it last month and forwarded to the Senate Appropriations Committee for final review before going to the Senate floor for vote.
SB1316 is disguised as providing “new market” tax credits for investors willing to invest in low-income property developments in CA. To offset the loss of tax revenue projected from the bill to the State, the bill proposes eliminating deferral of state capital gains for taxpayers who are exchanging CA real property for out of state real property.
The Senate Appropriations Committee heard the bill on July 15th and placed it in “suspense file”. Bills that are placed in this file are questionable of raising the revenue needed to offset its cost. The Committee plans to revisit the bill on August 12th to make a final decision to move it forward to the Senate floor for a vote. The FEA and a number of real estate organizations including the CA Association of Realtors continue to lobby the Committee that the bill will end up being a revenue loser.
