1031 Exchange in California: Rules, Requirements, and the Best Companies to Use

Last updated on July 23rd, 2021 at 01:15 pm

California’s 1031 exchange rules and regulations | Best 1031 exchange companies in California | Do I need to use a 1031 exchange company near me?

California’s hot real estate market is also a thriving market for California 1031 exchanges.

The Golden State boasts the second-highest median home values in the U.S. (second only to Hawaii), with values more than doubling over the past decade, skyrocketing from $306,000 in 2012 to $654,000 in 2021.

With housing supply lagging far behind demand, every region of California set an all-time record high in terms of median home values in 2021. The statewide sales-price-to-list-price ratio was 102.2%, meaning that the average home sold for more than its list price.

In this market, many California real estate investors are turning to California 1031 exchanges to protect their profits from capital gains taxes. 

However, investors should keep in mind that California has unique state laws governing 1031 exchanges. We’ll go over them in the next section, as well as a California tax law provision that could affect out-of-state property exchanges.

Want to talk to someone to explain everything in detail? Contact us today and one of our experienced 1031 exchange experts can give you a free consultation.

📈 By the numbers: 1031 exchange trends
According to a July 2020 report from the National Association of Realtors (NAR):
  • 61% of realtors have handled at least one 1031 exchange transaction since 2016.
  • 12% of all sales transactions since 2016 have been 1031 exchanges
  • 84% of exchange properties were held by small investors in 2020. That’s up from 81% in NAR’s 2015 survey.

California’s 1031 exchange rules and regulations 

California has specific state laws governing 1031 exchanges in the state, most of which increase security for investors and their money.

🏠 A 1031 exchange primer
Considering a 1031 exchange in California? Get a refresher on the basics with our definitive guides:

California’s state regulations for 1031 exchanges include these points:

  • Anyone who facilitates a 1031 exchange in California must maintain an office in the state.
  • Qualified intermediaries (QIs) are required to maintain a fidelity bond of $1 million or more, or keep all exchange funds in an escrow or trust account.
  • QIs must maintain an errors and omissions insurance policy of at least $250,000.
  • California 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 withhold 3⅓% of the sales price for the exchangor in case the exchange isn’t successful.
  • The state enforces a “claw back” policy on California 1031 exchanges that involve out-of-state property.

What is “claw back” in a California 1031 exchange?

California tax laws state that any gain in property value that accrues in California is subject to California state taxes, even if the California property gets exchanged for one in another state. In essence, California investors can’t avoid California state taxes by exchanging their California property for one out of state.

When the investor eventually sells their replacement property, their profits will be subject to state taxes in the state where the property is sold and in California, for any gains that were made in California. 

In addition, investors must file a California state tax return every year their gains are deferred. 

Investors should note that these taxes are due upon “cashing out.” If they continue to 1031 exchange their properties, they’ll continue to defer these California state taxes along with their capital gains taxes. 

The 7 best 1031 exchange companies in California

We’ve surveyed California’s 1031 exchange companies, and we picked the seven best. This chart offers a quick reference guide, while below you’ll find detailed profiles of each company. 

Scroll to see more ➡️

Asset Preservation, Inc. (API)Exeter 1031First American Exchange Company (First Am)IPX 1031Mission BankPeak 1031 ExchangeStarker Services
Year established 1993200519901988199820031987
Member of the Federation of Exchange Accommodators?
Local offices
Company size 58 employees50+ employees 100+ employees100+ employees100+ employees9 employees13 employees
Cost of deferred 1031 exchange $1,000-2000$899$1,000$1,000Fees vary$750+$750
Cost of a reverse 1031 exchange Fees vary$6,850$10,000-15,000$6,000Fees vary$5,000+$2,500

Asset Preservation, Inc. 

A subsidiary of Stewart Title Company, Asset Preservation, Inc. (API) handled more than 5,000 exchanges in 2020. The company’s sizable staff, which includes many Certified Exchange Specialists, goes above and beyond to work with California investors, including offering clients a “letter of assurance” that promises quality service.

Year established: 1990

Locations: Greenbrae, CA; Newport Beach, CA; Roseville, CA; Torrance, CA; Walnut Creek, CA; and nationwide

Website: https://apiexchange.com/

Leadership: Javier G. Vande Steeg, President and CEO (20+ years)

Member of the Federation of Exchange Accommodators?ℹ️ Yes

Rating: A+ on Better Business Bureau

Company size: 58 

Staff strengths: Many API employees are Certified Exchange Specialists, which means they’ve passed a special Federal Exchange Accommodators exam

Costs: Deferred 1031 exchange: $1,000-$2,000; reverse 1031 exchange: varies

Is the client’s money separated or commingled with others? Separated

Bonded and insured? Yes. $1 million fidelity bond, and $1 million in errors and omissions coverage

Expertise: API has experience with all types of 1031 exchanges, including delayed, improvement, and reverse 1031 exchanges.

Peak 1031 Exchange

Peak 1031 Exchange belongs to the Peak Corporate Network, a collection of companies that offers real estate services. It’s headquartered in California, so it’s a great local choice for investors who want to work with an in-California provider. Peak 1301 Exchange has stellar reviews and affordable rates, and it can tap into its network of sister companies if investors need ancillary real estate services.

Year established: 2003

Locations: Woodland Hills, CA

Website: https://peakexchange.com/

Leadership: Kevin M. Levine, Executive Vice President & Partner (19 years)

Member of the Federation of Exchange Accommodators?ℹ️ Yes

Rating: A+ on Better Business Bureau

Company size: Nine

Staff strengths: The team includes real estate specialists (agents, brokers, investors) and other helpful professionals can be found through the Peak Corporate Network

Costs: Deferred 1031 exchange: $750+; reverse 1031 exchange: $5,000+

Is the client’s money separated or commingled with others? Separated in qualified escrow accounts

Bonded and insured? Yes

Expertise: Delayed, reverse, improvement, and simultaneous 1031 exchanges 

Starker Services

Named after the legal case (Starker v. United States) that brought about the creation of the 1031 exchange, Starker Services was the first qualified intermediary company in the U.S. As such, it has significant experience with every aspect of the 1031 exchange.

Year established: 1987

Locations: Los Gatos, CA; San Jose, CA; and nationwide

Website: http://www.starker.com/

Leadership: Rochelle Stone, President (34 years)

Member of the Federation of Exchange Accommodators?ℹ️ Yes

Rating: A+ on Better Business Bureau 

Company size: 13

Staff strengths: Representatives of the nation’s oldest and largest qualified intermediary company have wide and substantial experience. Starker Services also has a longstanding business relationship with Bridge Bank, so its investors’ funds are FDIC-insured.

Costs: Deferred 1031 exchange: $750+, reverse 1031 exchange: $2,500+

Is the client’s money separated or commingled with others? Separated

Bonded and insured? Yes. $1 million fidelity bond, and $500,000 errors and omissions insurance

Expertise: As the oldest 1031 exchange qualified intermediary company in the U.S., it’s got extensive experience in all areas of 1031 exchanges.

IPX 1031

With six offices in California, IPX 1031 is a solid local choice for any California investor. It’s also one of the largest national 1031 exchange companies. The knowledgeable staff brings a special focus to reverse and improvement 1031 exchanges.

Year established: 1988

Locations: Carlsbad, CA; Monrovia, CA; Newport Beach, CA; San Diego; San Francisco; San Jose; and nationwide 

Website: https://www.ipx1031.com/

Leadership: John Wunderlich, President (10 years)

Member of the Federation of Exchange Accommodators?ℹ️ Yes

Rating: A+ on Better Business Bureau

Company size: 100+

Staff strengths: IPX 1031 employees typically have significant commercial real estate and legal experience

Costs: Deferred 1031 exchange: $1,000+; reverse 1031 exchange: $6,000+

Is the client’s money separated or commingled with others? Separated

Bonded and insured? Yes. $100 million fidelity bond, and $30 million in errors and omissions coverage

Expertise: IPX 1031 has a division that specializes in reverse and improvement exchanges.

First American Exchange Company 

First American Exchange Company (First Am) is a subsidiary of First American Title, one of the largest title companies in the U.S., so it’s a company on stable financial ground. It services clients across the nation and has attorneys in every office. 

Year established: 1990

Locations: Irvine, CA; Los Angeles; San Jose, CA; Walnut Creek, CA; and nationwide 

Website: https://www.firstexchange.com/

Leadership: Carmine DiFulvio, Senior Vice President (15 years)

Member of the Federation of Exchange Accommodators?ℹ️ Yes

Rating: A+ on Better Business Bureau

Company size: 100+

Staff strengths: First Am features attorneys on staff in all of its offices, and CPAs are often available, too

Costs: Deferred 1031 exchange: $1,000; reverse 1031 exchange: $10,000-$15,000, plus fees

Is the client’s money separated or commingled with others? Separated

Bonded and insured? Yes. $20 million fidelity bond, and $10 million errors and omissions insurance coverage

Expertise: First Amperforms all types of exchanges, with specific focus on deferred, reverse, improvement, and simultaneous 1031 exchanges.

Exeter 1031

Exeter 1031 is independently owned and based in California. It offers on-site notary and legal services, and an affordable fee table. It also specializes in the “zero equity 1031 exchange” on rental properties with no cash equity.

Year established: 2005

Locations: Los Angeles, Newport Beach, CA; San Diego; and San Francisco

Website: http://www.exeter1031.com/

Leadership: William “Bill” Exeter, President (two years)

Member of the Federation of Exchange Accommodators?ℹ️ Yes

Rating: A+ on Better Business Bureau

Company size: 50+

Staff strengths: On-site notary services and legal services, including expert witness testimony and arbitration

Costs: Deferred 1031 exchange: $899; reverse 1031 exchange: $6,850

Is the client’s money separated or commingled with others? Separated

Bonded and insured? Yes. $5 million fidelity bond, and $5 million in errors and omissions coverage

Expertise: In addition to a broad selection of common 1031 exchanges, Exeter 1031 also offers a “zero equity 1031 exchange” on rental properties with no cash equity.

Mission Bank 1031

Mission Bank 1031 is a subsidiary of Mission Bank, one of the largest regional banks in California. It claims to have executed over $1 billion in 1031 exchanges. With more than 20 years experience in the industry, Mission Bank 1031 offers a solid choice. Also, if you want, Mission Bank 1031 representatives will come to you, as opposed to you visiting their offices.

Year established: 1998

Locations: Headquartered in Bakersfield, CA, with other offices in Lancaster, CA; Mojave, CA; Ridgecrest, CA; Shafter, CA; Stockton, CA; and Ventura, CA.

Website: https://www.missionbank.com/about-mission-1031-exchange.htm

Leadership: A.J. Antongiovanni, President and CEO (Eight years)

Member of the Federation of Exchange Accommodators?ℹ️ Yes

Rating: A on Better Business Bureau

Company size: 100+

Staff strengths: Because it’s a subsidiary of a large regional bank, investors have easy access to wide variety of financial services and 1031 exchange experts

Costs: Deferred 1031 exchange: n/a; reverse 1031 exchange: n/a

Is the client’s money separated or commingled with others? Separated and FDIC-insured, since it’s deposited at Mission Bank

Bonded and insured? Yes

Expertise: Mission Bank 1031 executes deferred, improvement, reverse, and simultaneous 1031 exchanges, with the security of working with a large bank. 

Do I need to use a 1031 exchange company near me?

If you live in San Diego, a San Diego-based 1031 exchange qualified intermediary (QI) could be convenient, but it’s not required.

QIs in San Francisco, Sacramento, or Los Angeles could do the job just as well, or you could even use a QI from out of state. There’s no rule or regulation that requires you to use a qualified intermediary near you or in your state.

However, since California has its own unique state laws governing 1031 exchanges, make sure you confirm that any out-of-state qualified intermediary knows California’s laws, so you don’t end up putting your 1031 exchange at risk.

Let’s look at the pros and cons of using a national QI or a local California-based QI.

Using a qualified intermediary near you for a California 1031 exchange

✅ Pros❌ Cons
Guaranteed to be familiar with California state laws concerning 1031 exchangesIf you want to execute a 1031 exchange on property outside California, the QI may not be familiar with that state’s 1031 exchange regulations
A local QI should know the local market, which can come in handy if you need to rush to meet the 180-day deadlineIf your exchange runs into unusual problems, your QI may not have the depth of experience to deal with it
Can usually recommend reputable local providers Smaller, lower volume companies may charge higher fees

Using an out-of-state qualified intermediary for a 1031 exchange in California

✅ Pros❌ Cons
Larger, high-volume companies are sometimes able to charge lower feesNational companies may be less familiar with California’s 1031 exchange rules and regulations
The experience of a national company can be helpful if you run into unusual problemsA QI who misjudges the local market can delay your sale and could endanger the entire exchange if you miss the 180-day deadline
Investors who own property in multiple states may find it more convenient to work with a national QIMay not be able to recommend reputable local service providers

Selecting the right qualified intermediary is the first and most important step in your 1031 exchange. It’s vital you get it right.


Contact us today for a free consultation. One of our experienced 1031 exchange experts will walk you through the process and recommend the best path forward based on your needs!

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