Withholding at Closing: Form 593
California requires withholding when real estate is sold, unless the price is $100,000 or less or the seller certifies an exemption on Form 593. The standard amount is 3 1/3 percent of the sales price. A deferred 1031 exchange is exempt from withholding at the time of the initial transfer. If the seller later receives more than $1,500 in cash or other non-like-kind property, or the exchange fails, the qualified intermediary must withhold. Since 2022, a qualified intermediary's withholding is limited to the funds it actually holds.
California Taxes Gains as Ordinary Income
The Franchise Tax Board says California has no lower rate for capital gains: all capital gains are taxed as ordinary income. For 2025 the top bracket is 12.3 percent, and taxable income over $1 million owes another 1 percent, now labeled the Behavioral Health Services Tax. For tax years beginning in 2025, California limits like-kind exchanges to real property, matching federal law.
Sources: California FTB: capital gains and losses; California FTB: 2025 tax rate schedules; California FTB: 2025 Form 540 instructions; California FTB: Form FTB 3840 instructions
Exchanging Out of California: Form FTB 3840
If you exchange California property for property in another state, California requires Form FTB 3840 for the year of the exchange and every year after, generally until the California-source deferred gain is recognized. The requirement applies regardless of where you live. The source of the gain is fixed when it is realized, so California can tax it when you eventually sell, and if the form and a return are not filed, the FTB may estimate income and assess tax, penalties and interest.
Orange County Transfer Tax and Recording
The Orange County Clerk-Recorder's fee schedule, effective January 1, 2026, lists a documentary transfer tax of $0.55 per $500 of value, which is $1,100 on a $1,000,000 sale. The Clerk-Recorder records the deed, with a recording fee of $12 for the first page and $3 for each additional page.
Sources: Orange County Clerk-Recorder: fee schedule (effective 01/01/2026)
Working With 1031 Federal Exchange in Orange County
We sign the exchange agreement before your sale so escrow can certify the Form 593 exemption and send the proceeds to us. We hold the funds, receive your written identification by Day 45 and fund the replacement purchase by Day 180, in California or another state. Attorney Steve Wolterman leads every exchange.
Orange County, CA 1031 Exchange Questions
Will escrow withhold 3 1/3 percent if I do a 1031 exchange?
Not at the initial transfer in a deferred exchange, which California exempts on Form 593. Withholding applies later if you receive more than $1,500 in cash or other non-like-kind property, or if the exchange fails.
Do I have to keep filing in California if I exchange into another state?
Yes. Form FTB 3840 is due for the year of the exchange and every year after, generally until the California-source deferred gain is recognized, regardless of where you live.
State tax facts on this page were checked against official Orange County, CA sources in November 2026. Tax rules change, and this page is general information, not tax advice for your situation. Confirm the details with your tax advisor before you sell.
Ready to plan a 1031 exchange on your Orange County investment property? Contact 1031 Federal Exchange today.