For net lease owners in California, 1031 exchanges just became a much more popular option. Due to some bold new changes in the tax code, a California resident selling a $1 million investment property in Ca. potentially faces:
- 20% capital gains
- 3.8% Medicare (due to the law just coming into effect it’s still not known if this can be deferred)
- 13% State Tax in California
- 25% Depreciation Recapture
Needless to say, these higher tax rates don’t exactly make California the land of Milk & Honey for property owners looking to sell their investment. As a result, investors and property owners will most likely turn to 1031 exchanges in higher degrees. With such a large threat to their investment value if they sell, it only makes sense for property owners to “continue their investment” through 1031 exchanges.