Discussion:1031 Basis Out of state - Different state

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Discussion Forum Index --> Tax Questions --> 1031 Basis Out of state - Different state


Kevinh5 (talk|edits) said:

18 February 2007
Doing a 1031 exchange - federal gain will be deferred. Georgia's law says replacement property outside of GA makes it a taxable exchange for GA purposes. If replacement property is in North Carolina (or any other non-Georgia state), do you think that NC (or other state) basis will begin at new price instead of carried over?

Kevinh5 (talk|edits) said:

19 February 2007
If replacement state's basis = same as Fed, then potentially the gain would be taxed (different years) to both states, no way to get credit for taxes paid prior year to another state.

Death&Taxes (talk|edits) said:

19 February 2007
Very interesting question. Pennsylvania did not recognize the 1031 Exchange. I am struggling with a 2004 return where a PA and NJ property were exchanged for a property in MASS. Seems each state sets its own rules for depreciation methods, but for basis? If the state literally follows the Federal law, then it would seem the basis in the new state would be the Federal basis while tax was paid in the old state.

Riley2 (talk|edits) said:

19 February 2007
North Carolina requires that the state basis be the same as the federal basis – even though the federal basis was reduced by items not providing a tax benefit in the state of North Carolina. See North Carolina Secretary of Revenue, Decision No. 95-59 which involved a taxpayer who had a federal basis on a charter boat that was reduced by prior year federal depreciation deductions, but who was a nonresident of North Carolina during the years in which the depreciation was claimed.

Kevinh5 (talk|edits) said:

19 February 2007
Seems this should be against the "full faith and credit" or "due process" clause or something. BUT, each state is entitled to set the rules regarding property in that state. I searched the prior discussions and found nothing.

Death&Taxes (talk|edits) said:

19 February 2007
Riley's cite almost sounds like client DCW who depreciated his charter boat in NJ then sold it in NC and I tried to claim tax benefit rules on the recaptured depreciation. What was worse was that he had no benefit from the depreciation in NJ because NJ does not allow deduction of losses except against income. NC would not talk to me unless I appeared in Raleigh, if I recall.

Kevinh5 (talk|edits) said:

19 February 2007
A similar thing happens for NOL purposes. A GA NOL cannot be used to carry back or forward to California or NC, for example. But at least I understand that one, the new state should collect the tax on the income earned there, not offset by losses in prior years in another state. In the 1031 question, it appears they will require you to take into account losses (depreciation deductions) from another state's property.

I still don't think this is reasonable.

Kevinh5 (talk|edits) said:

1 April 2007
It would be great if readers would let us know whether an exchange OUT of your state requies the recognition of gain and payment of tax (instead of allowing an out of state 1031 to take place).

Let's hear about your state....

Death&Taxes (talk|edits) said:

2 April 2007
As you know, PA does not recognize the 1031 at all, but here is a twist. Client 1031ed in PA this year, but the property was acquired in a 1031 for a property in California many years ago. What is the PA basis?

PVVCPA (talk|edits) said:

April 2, 2007
Kevin, It looks like you have researched the Georgia rules, so I was hoping to piggyback your efforts. AZ resident exchanges AZ property to GA property. Would GA basis be full purchase price?

Client is considering moving to GA, so this may be important down the road.


Kevin, what did you use to research the GA law? My research tools appear to be lacking.

PVVCPA (talk|edits) said:

April 2, 2007
I figure somebody must have created a resource for this. A 50 x 50 grid for all states or something.

I spent a few minutes running all kinds of different internet searches...nothing.

Checked out the All States Tax Book...nothing.

Kevinh5 (talk|edits) said:

2 April 2007
PVV, I found the GA info online somewhere, I don't remember. Probably the DOR website for GA.

Mastill (talk|edits) said:

2 April 2007
GA law changed in 2005 i think. I know for 2006 out of state exchanges, ie, selling GA and buying FL are now allowed. I think this is what our Governor did that raised such a stink in the last election. We deal with quite a few exchanges and each state is different, however, most are now allowing out of state reinvestments to work.

Kevinh5 (talk|edits) said:

3 April 2007
Discussion:1031 Exchange-different states

KatieJ (talk|edits) said:

3 April 2007
Georgia repealed Law §48-7-27(b)(6), which required an addition modification to federal AGI for gain deferred on the exchange of Georgia property for out-of-state property, effective for years beginning January 1, 2004.

I thought Hawaii had a rule similar to the previous Georgia law at one time, but it doesn't seem to be there now.

Oregon used to have a statutory provision (ORS 314-290) that required recognition of gain if a nonresident exchanged Oregon property for non-Oregon property, but allowed residents to defer the gain until the earlier of the time it was recognized for federal income tax purposes or the time the taxpayer became a nonresident of Oregon. That was struck down as unconstitutional (privileges & immunities, as I recall) in 2001, and the statute was repealed, effective back to 1998. There is another statute, however, that requires recognition of the Oregon-source gain when it is recognized for federal purposes (ORS 316.716).

California takes the same position, that when the taxpayer ultimately sells the out-of-state property or otherwise recognizes the gain, it is California source income. That's just an administrative position in California, though.

There may still be some states that require recognition of the gain at the time of the exchange, but I haven't found one.

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