1031 Exchange in California – A Powerful Tax-Deferral Tool

California is the United States’ largest economy and one of the best places to do a 1031 exchange. Due to its incredibly high tax rate and skyrocketing home prices, many property owners have found that the 1031 exchange can save them hundreds of thousands in taxes.

1031 exchange in california

1031 Exchange, also called a Starker Exchange or Like-Kind Exchange, is one of the most powerful tax-deferral options available. Since home prices have reached the same levels as before 2008, many California residents are choosing to diversify into multiple cash-flowing properties in cheaper areas of the country.

In this guide, we’ll explain how the rules vary for a 1031 exchange in California compared to other places. In addition, we’ll explain the timelines and types of property you can exchange. Then, we’ll share our list of the best 1031 exchange companies in California.

Rules for 1031 Exchange In California

Before we explain how the California 1031 exchange rules are different, let’s begin with an overview of the 1031 exchange. Section 1031 of the IRS code says that you can exchange a business or investment property for another “like-kind” property and defer taxes. This could be as simple as a literal trade (also called a simultaneous exchange).

In the real world, the 1031 exchange is usually a sale of one property and purchase of another investment property within 180 days. There’s a lot more reading you should do if you’re brand new to the 1031 exchange, but that’s the simplest version.

There are different laws relating to the 1031 exchange in every state, and California is no different. These laws apply to you and your qualified intermediary if your old property is located in the state of California.

One point of confusion is whether you can exchange a California property for an out-of-state property. You CAN and defer all federal tax, but California has a clawback provision for 1031’s. We will cover this clawback later in the article.

Rules for 1031 Exchange In California That Are Different Than Other States

In California, most of the state rules that differ from federal rules are placed on the qualified intermediary. These include:

  • Anyone who facilitates a 1031 exchange must maintain an office in the state
  • Qualified Intermediaries must maintain a bond of $1 million or more, or keep all exchange funds in an escrow or trust account
  • Qualified Intermediaries must maintain an errors and omissions policy of at least $250,000
  • 1031 Exchange companies must act as a custodian for all client funds and invest exchange funds to a prudent standard
  • The California Franchise Tax Board requires Qualified Intermediaries to exchange 3 and 1/3 percent of the sales price for the exchangor in case the 1031 is not successful

California 1031 Exchange Timelines

1031 exchange timeline
California does not have different timelines than any other state for a 1031 exchange.

The timelines for a 1031 exchange are exactly the same as anywhere else in the country. As a refresher, from the date you sell your initial property, you have 45 days to identify a new property. After that, you have 180 days from the initial sale date to close on the purchase of the new property. A bit confused? We wrote about 1031 exchange timelines in detail.

We find all of these rules California has instituted to be fair. They mainly are used to hold qualified intermediaries to a high standard. Since there is no test or designation to become a qualified intermediary, this is prudent. What isn’t great, is California’s clawback provision for 1031 exchanges. Read on…

A California 1031 Exchange Rule to Consider – The Clawback

It’s no secret that California has both high taxes and a looming budget problem. They are one of the toughest states when it comes to the 1031 exchange, and all investors should be aware of their clawback provision.

California FTB Publication 1100 Irev 2007, section F states the following:

If you are a nonresident and exchange real or tangible property located within California for real or tangible property located outside California, the realized gain or loss will be sourced to California. Taxation will not occur until the gain or loss is recognized.

In effect, this means you could owe California taxes if you exchange a California property for a property outside of California. Also, it states non-residents need to file a nonresident income tax return for the year the replacement property is sold, assuming it’s not another 1031 exchange. This is unique to the state, and is one of the ways they are making up for budget problems.

We highly recommend consulting a tax professional or lawyer for advice on your situation. A great qualified intermediary will ensure your 1031 exchange goes smoothly as well.

Best 1031 Exchange Companies in California

Since California has some special rules such as the clawback provision, it makes choosing a qualified intermediary all the more important. We’ve spoken with the 1031 exchange companies, customers, and industry experts to compile this list of the best 1031 exchange companies in California.

Asset Preservation Inc (API)

One of the largest 1031 exchange companies in the United States, API is headquartered outside Sacramento in Roseville, CA. They have both a national presence and a team devoted to servicing clients in the state of California. Also, they’re a subsidiary of Stewart Title, a Fortune 1000 company.

They divide California into three regions. Southern California around Los Angeles up to Santa Barbara is handled by their Inland Empire team led by Dino Champagne. Orange County and San Diego is handled by Kayla Franklin, and northern California by Bill Angove.

Services API Offers

API offers a wide variety of 1031 exchange services. They are a subsidiary of Stewart Title Company, but they are only focused on 1031 exchanges. Unlike other 1031 qualified intermediaries, they do not try to sell DST or TIC properties in addition to an exchange. API offers the following services:

  • Delayed or Deferred Exchange
  • Reverse Exchange (Specialized Commercial Division within API)
  • Improvement Exchange (Also called construction or build-to-suit)

Asset Preservation, Inc Experience and Financial Stability

API has been around since 1990 and employs nearly 20 qualified intermediaries. This makes them one of the oldest and largest 1031 exchange companies in the United States. Going further, they’re also owned by Stewart Title and have their financial backing. API has errors and omission coverage and fidelity bond coverage of $1M in every state they do business in. Somewhat unique, API also provides a Letter of Assurance to each of their exchange customers. This assures you of their performance during the 1031 exchange process.

API Exchange Locations and Customer Service

Headquartered in Roseville, CA – API maintains offices across the United States. They offer free consultations to ensure a 1031 exchange will be feasible and save you money. In California their three regions each have separate offices. They include:

Orange County – Kayla Franklin – 5000 Birch St., Ste. 550 Newport Beach, California 92660

San Diego – Kayla Franklin – 7676 Hazard Center Dr. #1400, San Diego, California 92108

Greater LA/Inland Empire – Dino Champagne – 2790 Skypark Drive, Suite 206 Torrance, California 90505

Northern California (Headquarters) – Bill Angove – 1420 Rocky Ridge Drive, Suite 380 Roseville, California 95661

Peak 1031 Exchange

One of the smaller 1031 exchange companies on this list, Peak 1031 is headquartered in California and has made the state its primary focus. They are part of the Peak Corporate Network, which is a group of related but separate companies all providing real-estate services. Peak 1031’s Exchanges leadership has decades of experience helping clients with the 1031 exchange in California.

Services Peak 1031 Exchange Offers

Peak 1031 Exchange has close to ten team members on staff. The majority of their team is a member of the Federation of Exchange Accommodators, and many have taken the Certified Exchange Specialist exam. They are knowledgeable and versed in all types of 1031 exchanges. These include:

  • Delayed 1031 Exchange
  • Reverse 1031 Exchange
  • Improvement 1031 Exchange (Also called construction or build-to-suit exchange)
  • Simultaneous 1031 Exchange

Peak 1031 Experience and Financial Stability

Peak 1031 has decades of experience and most of their team has seen every possible type of exchange. They do not commingle client’s exchange funds with other clients, and hold the funds in a qualified trust account. Additionally, Peak 1031 does hold both fidelity bonds and errors and omissions coverage. This lets you rest easy knowing that your funds are being handled appropriately, and that in the case of emergency you are covered by insurance.

Peak 1031 Locations and Customer Service

Peak 1031 is headquartered in Woodland Hills, CA and has nearly ten employees. They are led by Kevin Levine and Steven Rosansky, both real estate professionals who have devoted their entire career to the exchange.

Woodland Hills Headquarters – 5900 Canoga Ave., Suite 280 Woodland Hills, CA 91367

Starker Services

Starker is one of the oldest and most experienced 1031 exchange companies in the United States. Based in Los Gatos, CA, they are a great choice for any 1031 exchange in California. Founded in 1987, it is named for the landmark legal case that effectively invented the 1031 exchange. We found that their exchange facilitators work as a team and are very responsive. If you’re based in California, they are an excellent choice as their headquarters is primarily limited to California and the west coast.

Services Starker Offers

The Starker team was at the forefront of the 1031 exchange industry, and was there from the beginning. Because of this, they are able to offer a full portfolio and do every type of exchange out there. Note that as of January 1, 2018, you can no longer exchange personal property, only real estate. Starker has a team of experts that only focus on the 1031 exchange, and nothing else. These services include:

  • Delayed 1031 Exchange
  • Reverse 1031 Exchange
  • Improvement 1031 Exchange (Also called construction or build-to-suit exchange)
  • Simultaneous 1031 Exchange

Starker Experience and Financial Stability

Starker has a long operating history and solid financial footing. They are separately held and independent of any major title or insurance company. This helps them push for the best interests of their clients, not a Fortune 500 or publicly traded company. Starker also has a longstanding relationship with Bridge Bank, which is FDIC-insured and lets you rest easy knowing your funds are secure.

Like many other 1031 exchange companies in California, Starker carries a $1M fidelity bond and $500,000 errors and omissions policy. If Starker ever entered bankruptcy, this ensures your funds are not used as part of Starker’s working capital. Last, Starker does not typically give you interest income while your funds are held.

Starker Locations and Customer Service

Starker has two separate offices in California, one their headquarters in Los Gatos, the other in San Jose. We found Starker’s facilitators to be extremely responsive to requests, and their service friendly. If you’re in northern California, they are a fantastic choice. Here are their two offices:

  • Los Gatos – 40 Fillmer Ave Los Gatos, CA 95030
  • San Jose – 144 S 3rd St, Unit 129 San Jose, CA 95112

Investment Property Exchange Services (IPX 1031)

IPX is the largest 1031 exchange company in the United States, and have nearly ten qualified intermediaries in California alone. Founded in the 1980s as one of the first group of qualified intermediaries, they have grown immensely across the country. They are a subsidiary of Fidelity National, one of the largest real estate services companies. This helps you rest assured that they are not a “fly by night” organization and have substantial financial backing.

Services IPX Offers

The California IPX team has decades of experience conducting 1031 exchanges. They can help with nearly any type of 1031 exchange and property. These include:

  • Delayed 1031 Exchange
  • Reverse 1031 Exchange
  • Improvement 1031 Exchange (Also called construction or build-to-suit exchange)
  • Simultaneous 1031 Exchange

IPX Experience and Financial Stability

IPX 1031 conducts thousands of exchanges each year, and most of their staff has been in the industry since it began. Additionally, a good portion of their qualified intermediaries are also lawyers. This means you can rest easy knowing your qualified intermediary is an expert on real estate rules specific to California.

While qualified intermediaries cannot give legal advice, you can access their staff of legal professionals, usually at no additional cost. In addition, most of their advisors are part of the Federation of Exchange Accommodators. Many hold the Qualified Exchange Specialist designation as well.

Like many of our top 1031 exchange companies, IPX has the necessary bonding and insurance coverage to ensure your funds are secure. They have an industry-leading $100M fidelity bond and $30M errors and omissions coverage. Most unique, they have a $50M performance guaranty. This ensures your withdrawal is returned in the same amount as your deposit.

IPX 1031 Locations and Customer Service

Owing to their large size and dominating presence, IPX has six offices in the state of California alone. They are extremely quick to respond to inquiries as their staff is paid on commission and hungry to find new business. If you need to get a 1031 exchange done in a short amount of time, we highly recommend IPX 1031. Here are their six locations around the state:

San Francisco – 601 California Street,Suite 1501 San Francisco, CA 94108

San Jose – 2099 Gateway Pl.,Suite 320 San Jose, CA 95110

Monrovia – 320 W. Foothill Blvd,Suite B Monrovia, CA 91016

Newport Beach – 4400 MacArthur Blvd, Suite 320 Newport Beach, CA 92011

Carlsbad – 2121 Palomar Airport Road,Suite 330 Carlsbad, CA 92011

San Diego – 2365 Northside Dr, Suite 600, San Diego, CA 92108

First American Exchange Company

Founded decades ago, First American Exchange (First Am) is one of the top 1031 exchange companies in California. A subsidiary of First American Title, a Fortune 500 company, they have offices around the country. Most importantly for you, they have four offices in the state of California alone!

Services First American Exchange Offers

Their team is largely made up of experience qualified intermediaries who have been doing exchanges for decades. They can help with nearly any type of 1031 exchange and property. These include:

  • Delayed 1031 Exchange
  • Reverse 1031 Exchange
  • Improvement 1031 Exchange (Also called construction or build-to-suit exchange)
  • Simultaneous 1031 Exchange

First American Exchange Experience and Financial Stability

Most of First Am’s staff are members of the Federation of Exchange Accommodators. Even more important, a good chunk of their have passed the Certified Exchange Specialist exam. Their California team knows the laws specific to the state, and also have attorneys and accountants on staff to provide advice.

Since First American Exchange is a subsidiary of Publicly Traded First American Financial (NYSE: FAF), they are not going out of business anytime soon. First Am holds all client funds in a separately held, FDIC-insured bank account. Most impressively, First Am holds fidelity bonds totaling $20M and errors and omissions coverage totaling $10M. This is the most we’ve seen any exchange company carry.

First Am Locations and Customer Service

With four offices in the state of California alone, First Am has one of the largest reaches of any 1031 exchange company. Each office has a qualified intermediary, and most have additional staff members ready to help. These four locations should have you covered:

  • San Jose – Lisa Jackson and Paul Van Every – 1737 North First Street San Jose, CA 95112
  • Walnut Creek – Avery Bibbs and Alaine Raven – 1850 Mt. Diablo Blvd.,Suite 300 Walnut Creek, CA 94596
  • Los Angeles – Cynthia Pettyjohn and Ken Harris – 777 South Figueroa Street,Suite 400 Los Angeles, CA 90017
  • Irvine – Anthony Alosi – 18500 Von Karman Avenue,Suite 600 Irvine, CA 92612

Exeter 1031

Founded by William “Bill” Exeter in 2004, Exeter 1031 Exchange Services is one of the best 1031 exchange companies in the country. Headquartered in San Diego with offices around the country, they are industry experts and stay on the cutting edge of the 1031 exchange.

Services Exeter 1031 Offers

They are well-versed in every type of 1031 exchange and nearly every type of property. These include:

  • Delayed 1031 Exchange
  • Reverse 1031 Exchange
  • Improvement 1031 Exchange (Also called construction or build-to-suit exchange)
  • Simultaneous 1031 Exchange
  • Self-Directed IRAs

Exeter 1031 Experience and Financial Stability

Exeter was originally started in 2004 and employs over 30 people spread across its businesses. They carry a $5M fidelity bond and $5M errors and omissions coverage, well above the California state minimum. In addition to abiding by California’s rules, they have chosen to be regulated and audited by the Wyoming Division of Banking since they have a presence there.

They ensure that client funds are not commingled with Exeter’s operating accounts or other client funds. They’re kept in qualified trust accounts and have proper procedures in order to withdraw from these accounts. Last, Exeter 1031 Exchange is not owned by a large title company and is completely independent. This means they don’t have to answer to a parent company who has shareholders and Wall Street expectations. They can remain neutral with their clients and not unnaturally push exchanges.

Exeter 1031 Locations and Customer Service

Exeter has its HQ in San Diego, and has a physical presence in all regions of the United States. Additionally, they are the only exchange company to provide 24/7/365 customer support. They understand that some services are time sensitive, and customers love this. This can be especially important if you are coming up on a deadline for your 1031 exchange. They have California offices at the following places:

  • San Diego Headquarters: 404 Camino del Rio South, Suite 600 San Diego, California 92108
  • LA County Regional Office: 515 South Flower Street, 36th Floor Los Angeles, California 90071
  • Orange County Branch Office: 4695 MacArthur Court, 11th Floor Newport Beach, California 92660
  • San Francisco Branch Office: 50 California Street, Suite 1500 San Francisco, California 94111

Mission Bank

With a long history conducting 1031 exchanges, Mission Bank is a trustworthy place to do an exchange. Focusing on inland California with offices in Bakersfield, Lancaster, Ridgecrest, Ventura, and others, they likely have an office near you. Haley Wilson is their lone qualified intermediary, but has the backing of an entire bank ensuring your 1031 exchange in California goes according to plan.

Services Mission Bank Offers

On their site, they list the four major types of 1031 exchanges and have experience in all of them. They include:

  • Delayed 1031 Exchange
  • Reverse 1031 Exchange
  • Improvement 1031 Exchange (Also called construction or build-to-suit exchange)
  • Simultaneous 1031 Exchange

Mission Bank Experience and Financial Stability

Mission Bank has decades of experience conducting 1031 exchanges, and has the backing of a large regional bank. Mission Bank has been serving the state of California for decades and started a 1031 exchange service to help their customers further.

Deposits are held at the same place, Mission, which is FDIC-insured up to $250,000 and reputable place to keep funds. More importantly, Mission keeps client funds separate from other clients, ensuring your funds are never commingled with other clients. A bank statement is mailed to you monthly, ensuring you know what is going on with your real estate fund proceeds.

Mission Bank Locations and Customer Service

Mission Bank has locations around the state of California, and offers to meet you at your office if needed. They have a long history of serving the needs of their clients, and have done over $1B of 1031 exchanges. They are headquartered in Bakersfield and their exchange officer Haley Wilson is in Ventura, CA.

Bakersfield HQ – 1301 17th St Bakersfield, CA 93301

Ventura Regional Office – 1500 Palma Dr., Ste. 112 Ventura, CA 93003

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