California fomr 3840

[ba...@mktaxpros.com]

My client did a 1031 exchange – California rental house for an Oregon rental house.  It was a rental for 5 years, and now they want to gift it to their daughter.  We have been filing the 3840 for the last 5 years.  Will they have to pay California tax on the deferred gain or is there an exception for gifting the property instead of selling it.

 

Bart Ketterling, EA

Martin, Ketterling & Associates

2299 E Main St. Suite 8, Ventura, CA 93001

805.653.7362 Office

805.653.1991 Fax

www.mktaxpros.com

 

 

 

We also offer retirement and financial planning services at www.ketterlingfinancial.com.

 

[PHILIP P STORRER]

Hey Bart.. Consider this:

In general, the basis of property recd by gift is given by section 1015 to be the basis to donee is generally equal to the basis in the hands of the donor (donor’s basis) at the DOG (date of gift)… if the FMV of the property is less than the donor’s basis at DOG then the basis for determining gain is the donor’s basis at DOG … the basis for determining loss is FMV at DOG …if the amount realized when the property is sold falls between the donor’s basis & the FMV at DOG..then the gain or loss is indeterminate.. i.e.- no gain or loss!!!

Example: 

Donor’s basis at DOG $100,000

FMV at DOG   $70,000

Donee 3 years later sells property: 

      EG # 1 assume sales price 3years later under section 1001   $140 ,000

 Donee basis = donor’s basis at DOG.           $100,000

Gain/loss realized:

           Sales price         $140,000

           Less Basis to Donee 100,000

            Gain realized                40,000

EG #2 assume sales price 3 years later under 1001   $60,000

Gain realized:

   Sales price                  $60,000

    Less basis to donee   100,000

     Loss realized.                 40,000

EG #3 assume sales price $ 120,000

Note well.. when sales price by donee falls between basis to the donor and FMV at DOG then gain/loss is Indeterminate….. There is no gain & no loss to be recognized (taxed)

Reconsider gifting to daughter.. basis may be lost… 

Assume Basis to donor = $80,000

FMV =  $120,000

Basis to donee 

      Gift                          80,000

       Inheritance         120,000   

        

Let’s run that up the flagpole and see what others think 

Phil

Sent from my iPhone

On Apr 27, 2024, at 7:21 AM, ba...@mktaxpros.com wrote:



My client did a 1031 exchange – California rental house for an Oregon rental house.  It was a rental for 5 years, and now they want to gift it to their daughter.  We have been filing the 3840 for the last 5 years.  Will they have to pay California tax on the deferred gain or is there an exception for gifting the property instead of selling it.

 

Bart Ketterling, EA

Martin, Ketterling & Associates

2299 E Main St. Suite 8, Ventura, CA 93001

805.653.7362 Office

805.653.1991 Fax

www.mktaxpros.com

 

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We also offer retirement and financial planning services at www.ketterlingfinancial.com.

 

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[PHILIP P STORRER]

I don’t know about CA tax… 

I’m sorry don’t know the answer to that

Phil

Sent from my iPhone

On Apr 27, 2024, at 2:55 PM, PHILIP P STORRER <psto...@comcast.net> wrote:



[Lee Reams]

Bart,

I have looked and looked and cannot find a definitive answer.  The 3840 instructions say gain is recognized when in a taxable transaction.  But the FTB instructions do not include a gift as reason for no longer filing FTB 3840. I also read through several R&TC Sections and found nothing.  Personally, I would think it would trigger the income. I think for your CYA it might be appropriate for your client to get an opinion of a CA real estate attorney.

Sorry I could not come up an answer.

Lee

 

Form 3840 Instructions

A valid like-kind exchange has the benefit of deferred taxation, meaning that the taxpayer does not bear a tax liability at the time of the exchange. The taxpayer recognizes the realized gain or loss when the like-kind property received is sold or disposed of in a subsequent taxable transaction.

 

https://www.ftb.ca.gov/file/personal/reporting-like-kind-exchanges.html

You must continue to file FTB 3840:

• As long as you defer the gain or loss
• If you exchange the out-of-state replacement property with another out-of-state property as part of another exchange
• Until you report and pay tax to California on your deferred gain or loss
• Until the owner of the replacement property dies, eliminating the deferred California source gain or loss
• Until you donate the replacement property to a non-profit organization

On Apr 27, 2024, at 10:21 AM, <ba...@mktaxpros.com> <ba...@mktaxpros.com> wrote:

My client did a 1031 exchange – California rental house for an Oregon rental house.  It was a rental for 5 years, and now they want to gift it to their daughter.  We have been filing the 3840 for the last 5 years.  Will they have to pay California tax on the deferred gain or is there an exception for gifting the property instead of selling it.

 

Bart Ketterling, EA

Martin, Ketterling & Associates

2299 E Main St. Suite 8, Ventura, CA 93001

805.653.7362 Office

805.653.1991 Fax

www.mktaxpros.com

 

  

 

We also offer retirement and financial planning services at www.ketterlingfinancial.com.

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	Lee Reams Sr., BSME, EA Chief Content Officer CountingWorks Pro | CountingWorks | TaxBuzz | TaxCPE p: 1.800.442.2477 x240 w: www.countingworkspro.com/  e: lee....@countingworks.com
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[ba...@mktaxpros.com]

Thanks Lee.

 

Bart Ketterling, EA

Martin, Ketterling & Associates

2299 E Main St. Suite 8, Ventura, CA 93001

805.653.7362 Office

805.653.1991 Fax

www.mktaxpros.com

 

 

 

We also offer retirement and financial planning services at www.ketterlingfinancial.com.

  

 

We also offer retirement and financial planning services at www.ketterlingfinancial.com.

 

 

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	Lee Reams Sr., BSME, EA Chief Content Officer CountingWorks Pro | CountingWorks | TaxBuzz | TaxCPE p: 1.800.442.2477 x240 w: www.countingworkspro.com/  e: lee....@countingworks.com
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