The short answer
Form FTB 3840 is the information return California requires from any taxpayer who exchanges California real property for like-kind property located outside California, filed for the year of the exchange and for each later year until the California-source deferred gain is recognized. It comes from Revenue and Taxation Code section 18032 for personal income tax and section 24953 for corporations, and applies to exchanges in taxable years beginning on or after January 1, 2014. Its job is to keep California's claim on gain it deferred after the property leaves the state.
At a glance
| Legal basis | California Revenue and Taxation Code sections 18032 and 24953 |
|---|---|
| Who files | Anyone who swaps California real property for out-of-state like-kind property, resident or not; a disregarded entity's owner files |
| How long | The year of the exchange and every later year, generally until the California-source deferred gain is recognized |
| If you skip it | With no form and no return, the FTB may estimate your income, including the deferred gain, and propose tax, penalties and interest |
California keeps its claim on gain that leaves the state, and FTB 3840 is how it tracks that gain.
The FTB 3840 instructions state the principle: the source of gain on California property is fixed when the gain is realized and is preserved no matter when it is later recognized. A section 1031 exchange defers recognition, so California needs a way to follow the deferred amount into property in another state. Section 18032(a) does that by requiring an information return for the year of the exchange and each later year the gain stays unrecognized.
The filing duty reaches individuals, estates, trusts, partnerships, LLCs and corporations, whatever their residence or commercial domicile. A disregarded entity does not file; its owner does. If you have no other California filing requirement, you complete the whole form, sign it and mail it on its own to the Franchise Tax Board.
The form copies your federal Form 8824 figures into Part II, then adds Schedule A: each property given up and received, your ownership share, the California adjusted basis, and the California-source deferred gain allocated to each replacement property. A DST interest is listed by the trust's name instead of a street address.
A worked example follows one deferred gain from the initial filing to the final one.
Hypothetical: in 2025 you sell a Fresno fourplex and buy DST interests holding property in Texas and Ohio, deferring $400,000 of gain. You move to Nevada the next year. With your 2025 return you file an initial FTB 3840, which for a calendar-year individual was due April 15, 2026, or October 15, 2026 on extension.
For 2026 you check the Annual box, enter 2025 as the exchange year and repeat the same figures. You do the same each year the DSTs hold their property. If a trust sells and you exchange again into other out-of-state property, the gain is still unrecognized, so the filings continue.
When you finally sell for cash, you file a Final FTB 3840 with a statement explaining how the California-source gain was recognized. Treat the figures as a rounded sketch and ask your CPA to work your real numbers. The California picture as a whole is on the California 1031 exchange page.
It bites years after the exchange, when the owner has left California and forgotten the form.
Under section 18032(b), if you fail to file the information return and also fail to file a California return, the FTB may estimate your net income from any available information, including the deferred gain, and propose to assess tax, interest and penalties. The instructions describe this as a Notice of Proposed Assessment.
Each exchange needs its own form. An exchange into replacement property inside California does not trigger the requirement at all, because the statute applies only when the property acquired is located outside the state. For how other states treat a deferred gain, see whether a 1031 defers state capital gains tax and exchanging into another state.
Related questions
Do I still file FTB 3840 after I move out of California?
Yes. The requirement applies regardless of residence, and if you have no other California return you sign the form and mail it as a stand-alone information return.
Does a second exchange end the FTB 3840 filings?
No. The filings generally continue until the California-source deferred gain is recognized, and a further tax-deferred exchange does not recognize it.
Is FTB 3840 required if my replacement property is also in California?
No. Section 18032 applies only when the property acquired in the exchange is located outside California.
Sources
Checked against these publications on September 30, 2026. Rules and figures change; confirm the current version with your CPA or attorney before you act. This page is general information, not tax or legal advice.