CA Form 3840 and IRC 721
In 2017, I exchanged a rental property in California for multiple properties located out of state. Since then, I have been filing CA Form 3840 annually as required. In 2024, under code section 721, I contributed these properties to a partnership in exchange for partnership units equivalent to my original equity. As a result, I will receive K-1 forms to report on my tax return for 2024.
I have questions about how to reflect this event on Form 3840 for California purposes. Should I remove the properties from the form and include a statement? What specific information should I include in that statement when you remove the properties from Form 3840? Additionally, must I provide extra documentation to the California Franchise Tax Board (FTB) for the section 721 exchange? The California FTB does not give specific instructions regarding a section 721 exchange, so I am uncertain about the correct procedure.
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I would treat this as a new exchange and remove the properties from the 3840 and replace them with the partnership shares. The whole point to filing the return every year is that when the final taxable event does occur California will receive it's cut. Since the property is now a partnership interest that California is waiting to have sold that is what the 3840 should be tracking.
I would treat this as a new exchange and remove the properties from the 3840 and replace them with the partnership shares. The whole point to filing the return every year is that when the final taxable event does occur California will receive it's cut. Since the property is now a partnership interest that California is waiting to have sold that is what the 3840 should be tracking.
I have exactly the same situation except I have exchanged in 2024 one of the 4 out of state properties for a partnership interest (UPREIT 721) which were originally exchanged for a California rental property under 1031. I still have 3 out of state properties subject to CA 3840. How may I report on CA 3840 the acquisition of a partnership interest in exchange for contribution of my property interest to the partnership? Thanks.
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