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):
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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.
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| Asset Preservation, Inc. (API) | Exeter 1031 | First American Exchange Company (First Am) | IPX 1031 | Mission Bank | Peak 1031 Exchange | Starker Services | |
|---|---|---|---|---|---|---|---|
| Year established | 1993 | 2005 | 1990 | 1988 | 1998 | 2003 | 1987 |
| Member of the Federation of Exchange Accommodators? | ✅ | ✅ | ✅ | ✅ | ✅ | ✅ | ✅ |
| Local offices | ✅ | ✅ | ✅ | ✅ | ✅ | ✅ | ✅ |
| Company size | 58 employees | 50+ employees | 100+ employees | 100+ employees | 100+ employees | 9 employees | 13 employees |
| Cost of deferred 1031 exchange | $1,000-2000 | $899 | $1,000 | $1,000 | Fees vary | $750+ | $750 |
| Cost of a reverse 1031 exchange | Fees vary | $6,850 | $10,000-15,000 | $6,000 | Fees 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)
YesRating: 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)
YesRating: 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)
YesRating: 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)
YesRating: 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)
YesRating: 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)
YesRating: 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)
YesRating: 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 exchanges | If 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 deadline | If 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 fees | National 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 problems | A 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 QI | May 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!
