1031 Exchange: California to Nevada
Nevada has no income tax. It is not free on everything else, and California does not let go of the gain you deferred.
Nevada is the default answer for California owners who want out. No income tax, drivable from Sacramento, and a state that markets its tax climate on purpose. Most of that reputation holds up. Two things do not, and they are the two things owners on this route get wrong most often.
- California does not let go. The gain you deferred was sourced to California the day you sold, and the state expects an annual filing from you for as long as you hold the Nevada property. Moving to Nevada does not change it.
- Nevada is cheap on income and not free on everything else. Your exchange is a fully taxable recording event at the county. Your investment property sits under the 8% property tax cap, not the 3% cap most articles quote. And if you hold in an entity, there is an annual license fee.
The California side is covered in depth on two other pages, linked below. This page is about what Nevada actually costs you once you get there.
The Framework That Crosses State Lines
| Rule | What it means |
|---|---|
| 45 days | You identify replacement property in writing, counted from the day you close the sale. |
| 180 days | You take title to the replacement property, counted from that same closing. |
| No constructive receipt | A Qualified Intermediary holds the proceeds between closings. |
| Real property only | Since the Tax Cuts and Jobs Act, equipment and other personal property no longer qualify. |
| Form 8824 | How the exchange gets reported to the IRS. |
Crossing a state line does not break the exchange. California real property and Nevada real property are like-kind to each other. Crossing a national border does break it, because U.S. and non-U.S. real property are not like-kind. Sources: IRS Publication 544 and IRS Form 8824. Full mechanics on the 1031 exchange hub.
The Clawback Follows You East
California decides where a gain comes from at the moment it is realized, which is the day you sell. The source is preserved without regard to when the gain may be recognized. (FTB Form 3840 instructions) The exchange delays recognition. It does not change source. That is the whole clawback. The rule is R&TC §18032, with a corporate parallel in §24953, and it applies to exchanges in taxable years beginning on or after January 1, 2014.
- Nothing is due at the exchange. The deferral works. You are not writing California a check to buy in Reno.
- You file FTB Form 3840 every year the deferred gain is still out there, starting with the year of the exchange.
- You file it even if you owe California nothing and file no California return at all.
- Residency does not matter. The requirement applies regardless of residence status.
- The trigger is a later taxable sale of the Nevada property. California then taxes the lesser of the deferred California gain or the gain you actually recognize, so Nevada-only appreciation is generally not California’s. (FTB Publication 1100, Example 16)
- Stopping the filings is not a hiding strategy. The FTB may estimate income from any available information and propose an assessment with tax, interest, and penalties.
- The eventual bill runs on regular California rates, topping out at 12.30% for 2025, plus a 1% Behavioral Health Services Tax over $1,000,000 of taxable income. Whether any preferential treatment applies to your gain is a question to confirm with your CPA.
- Nothing offsets it. Nevada has no income tax, so there is no Nevada bill to credit against the California one.
Go deeper: California 1031 clawback for how the rule works and what triggers it, and FTB Form 3840 for who files, the Initial, Annual, Amended, and Final versions, due dates, and how to complete it.
The Withholding Exemption Has Two Cracks
California withholds 3 1/3% (3.33%) of the sales price on real estate sales. A properly structured exchange is exempt at the time of transfer. Two things break that exemption.
- Boot over $1,500. Cash or other non-like-kind property above that amount triggers withholding.
- A failed exchange. If the exchange does not happen or does not qualify, the intermediary must withhold 3 1/3% of the sales price. (2026 Form 593 instructions)
Blow the 45-day window and your Qualified Intermediary takes it off the top. Build the identification list like the deadline is real, because it is.
No Income Tax, and It Is Constitutional
Nevada’s constitution is explicit: no income tax shall be levied upon the wages or personal income of natural persons. (Nev. Const. art. 10, § 1) The Nevada Governor’s Office of Economic Development lists what the state does not impose: no corporate income tax, personal income tax, franchise tax, inventory tax, inheritance or gift tax, or estate tax. (Nevada GOED)
So rental income from a Nevada property is not taxed by Nevada, and gain on a future Nevada sale is not taxed by Nevada. That headline is accurate. It is also not the whole picture, because Nevada raises revenue in other places.
There Is No 1031 Exemption
This is the one that catches people at the recorder’s office. Your exchange is tax-deferred federally. The county still collects.
| Where | Rate |
|---|---|
| Clark County | $2.55 per $500 of value |
| Washoe and Churchill Counties | $2.05 per $500 |
| Most other counties | $1.95 per $500 |
- NRS 375.090 lists the exemptions and like-kind exchanges are not among them. There is no 1031 carve-out from Nevada transfer tax.
- Buyer and seller are jointly and severally liable for the tax, penalties, and interest. Who pays it is a negotiated term, not a legal default that protects you.
Price it into the deal before you write the offer. (Nevada Dept. of Taxation, RPTT | NRS Chapter 375)
Nothing Works Like Prop 13
California owners arrive expecting assessed value locked to purchase price with a 2% annual ceiling. Nevada builds the number from the ground up instead.
| Step | How Nevada does it |
|---|---|
| Taxable value | Market value of the land, plus current replacement cost of improvements, minus depreciation. |
| Depreciation | 1.5% per year of effective age, capped at 50 years. |
| Cost source | Assessors use the Marshall & Swift Building Cost Service. |
| Assessed value | 35% of taxable value, so a $200,000 taxable value becomes $70,000 assessed. |
| Tax rate | Set by district. Clark County’s published example uses 3.2782 per $100 of assessed value. |
Your first Nevada tax bill will not look like the arithmetic you are used to. It is a different system with a different logic, not a variation on the one you know. (Clark County Assessor) Figures are illustrative of the method, not a quote for any specific parcel. Confirm your own numbers with the county assessor and your CPA.
The abatement caps: 3% is not your cap
Nevada limits how much your tax bill can rise year over year. There are two caps, and investors routinely assume they get the wrong one.
| Cap | Applies to |
|---|---|
| 3% | Owner-occupied primary residences only: single-family house, townhouse, condominium, or manufactured home. One property per owner statewide. Some low-income rental units also qualify if they meet HUD rent thresholds. |
| Up to 8% | Everything else. Non-owner-occupied residences, land, commercial buildings, business property. |
If you are doing a 1031 exchange, your Nevada replacement property is on the higher cap. Investment property does not get primary residence treatment. The 3% cap you read in a Nevada relocation article was written for someone else. The 8% figure is a ceiling, not a rate. NRS 361.4722 sets the annual factor as the greater of the county’s ten-year average change in assessed valuation or twice the increase in the Consumer Price Index, compared against 8%, whichever is less. (NRS 361.4722) The applied cap moves year to year and can land well under 8%. Pull the current-year figure from the county assessor for the fiscal year you care about.
Two traps in the fine print
- New construction or a change of use gets one uncapped year. Property that is newly built or converted will not qualify for any cap that fiscal year, then receives the 3% or up to 8% cap starting the following fiscal year.
- Recording resets an owner-occupied claim. Any ownership document recorded removes the owner-occupied 3% abatement. If any part of your Nevada plan involves a primary residence, someone has to file a new claim form with the assessor after recording. (Clark County, Tax Abatement)
An Annual Fee If You Hold in an Entity
If you hold the Nevada property in an entity, budget for this. It renews annually.
| Entity type | Annual fee |
|---|---|
| Corporations under NRS 78, 78A, 78B, including foreign corporations | $500 |
| Other entities | $200 |
Whether an individual holding a Nevada rental in their own name needs one is not something the statute text resolves cleanly. Ask your CPA before assuming either way. (NRS 76.100)
Two Taxes That Depend on Scale
Nevada’s gross receipts tax, NRS Chapter 363C, runs on a fiscal year, July 1 through June 30.
| Commerce Tax item | Detail |
|---|---|
| Threshold | $4,000,000 of Nevada gross revenue in the taxable year. At or below that, businesses are no longer required to file a Commerce Tax return. |
| Exclusion | The first $4,000,000 is excluded from taxable revenue for filers who exceed it. |
| Rate, NAICS 53 (real estate, rental and leasing) | 0.250% of taxable revenue. |
| Return due | August 14, or the next business day. |
For one property, $4 million of annual Nevada gross revenue is nowhere close. For a portfolio, a syndication, or an operating business, it can be. Whether an out-of-state entity owning Nevada rental property has Nevada nexus here is not clearly addressed in the published materials, so if you are near the threshold, get it answered rather than assumed. (Commerce Tax return instructions)
Nevada also taxes payroll instead of income. The Modified Business Tax applies to employers subject to Nevada’s unemployment compensation law, on gross wages less employee health care benefits: a general business rate of 1.17% effective July 1, 2023, 1.554% for financial institutions and mining, with the first $50,000 of quarterly wages excluded for general business, filed quarterly even with no liability. Buy a building and hire nobody and this does not touch you. Put an onsite manager or maintenance staff on a W-2 and it does. (Nevada Dept. of Taxation, MBT)
The Pull East Is Not Mysterious
The math is not complicated. No personal income tax and no corporate income tax in Nevada against a California top bracket of 12.30% plus the 1% surcharge over $1 million. Reno and Las Vegas are drivable from most of California, which matters more than people admit when you are self-managing. Add California’s landlord regulations, reassessment on transfer, and litigation climate, and the pull east is not mysterious.
But a lot of the owners we talk to are not chasing yield. They are done. The property is fine, the tenant is fine, and they are tired of the phone calls. That is a real reason to move, and a Nevada exchange is only one of the possible answers. Sometimes it is a straight sale and paying the tax. Sometimes it is an exchange into a triple net structure so the management burden goes away. Sometimes it is a refinance and keeping the asset. The clawback belongs in that decision up front, not in year three.
The Seven People Miss
The filing never ends
Form 3840 is an annual commitment for as long as you hold. Small task, large problem when a CPA changes and the handoff drops it.
Moving does not help
Nevada residency does not clear a California-sourced deferred gain.
No offsetting credit
No Nevada income tax means nothing to credit against the California bill when it lands.
Transfer tax still applies
Federal deferral, county collection. No 1031 exemption in Nevada.
Your cap is 8%, not 3%
Investment property, every time.
Boot breaks the exemption
Boot over $1,500 breaks the California withholding exemption at closing.
Property tax is a build-up, not a lock-in
Land value plus depreciated replacement cost, a 35% ratio, then a cap on the bill’s increase. It is a different system, not a variation on Prop 13.
Questions Owners Ask on This Route
Not at the time of the exchange. The exchange defers the gain the same way it would if you bought in California. What California does is track the deferred California-source gain and require an annual information return, Form 3840, until that gain is recognized.
No. The FTB applies the Form 3840 requirement to all taxpayers who did the exchange regardless of residence status. California sourced the gain when you sold the California property.
The lesser of the original deferred California gain or the gain you recognize on the sale. FTB Publication 1100, Example 16, walks through a $15,000 deferred gain and a $20,000 later gain, and California taxes the $15,000. Appreciation that happened only in Nevada is generally not California’s to tax.
Yes. NRS 375.090 lists the transfer tax exemptions and like-kind exchanges are not among them. Rates run $1.95 per $500 of value in most counties, $2.05 in Washoe and Churchill, and $2.55 in Clark. Buyer and seller are jointly and severally liable.
Almost certainly not. The 3% cap applies to owner-occupied primary residences, one per owner statewide. Investment property, land, and commercial buildings fall under the up to 8% cap. The 8% figure is a ceiling. NRS 361.4722 sets the annual factor as the greater of a ten-year county assessed valuation average or twice the CPI increase, capped at 8%.
Nevada has no personal income tax. Its constitution states that no income tax shall be levied upon the wages or personal income of natural persons. Nevada also has no corporate income tax and no franchise tax.
Weighing a California sale against a Nevada buy?
Matt Bingaman works Greater Sacramento commercial real estate, and this is the work he does. A short conversation now is worth more than a correction later. Fifteen minutes, no pitch. Matt is not a tax or legal advisor and coordinates closely with your CPA and Qualified Intermediary.
Sources and References
Federal
California
Nevada
- Nevada Constitution: Article 10, Section 1
- Nevada GOED: Doing Business in Nevada
- Nevada Dept. of Taxation: Real Property Transfer Tax
- Nevada Revised Statutes: Chapter 375
- Clark County Assessor: Real Property
- Nevada Revised Statutes: NRS 361.4722
- Clark County: Tax Abatement
- Nevada Revised Statutes: NRS 76.100
- Nevada Dept. of Taxation: Commerce Tax Return Instructions
- Nevada Dept. of Taxation: Modified Business Tax