FTB Form 3840
The California filing that follows your exchange forever — and what happens when people stop filing it.
FTB Form 3840 is required when you exchange California real property for replacement property outside California and any California-source gain goes unrecognized. It is filed for the year of the exchange and every year afterward, until that deferred gain is finally recognized in a taxable sale. It is the paperwork behind the California 1031 clawback, one piece of the broader 1031 Exchange Strategy.
There is no sunset. Exchanging again into another property does not end it. And you must file even if you have no other California filing obligation — it can be submitted as a standalone information return.
What Trips People Up
It never ends on its own
You file every year, from the year of the exchange until the deferred California gain is recognized. No sunset, no year cap.
It follows you out of state
Moved away? You still file. Form 3840 can be submitted as a standalone information return even with no other California filing obligation — the most-missed rule of all.
The penalty myth
There is no standalone penalty for skipping the 3840 by itself. The real exposure is that the statute of limitations never starts — so the years stay open. See below.
Who Must File It
- Anyone — resident or nonresident — who exchanges California real property for out-of-state replacement property with any California-source gain unrecognized.
- Individuals, estates, trusts, partnerships, LLCs, and corporations.
- Disregarded entities do not file; the owner files on the entity’s behalf.
The standalone filing is the part people miss. If you have left California and have no other state filing obligation, you still file Form 3840 on its own as an information return. Leaving the state does not end it — that is exactly the situation the FTB’s compliance program looks for.
Every Year, Until It Ends
Form 3840 is filed for the year of the exchange and every year afterward, indefinitely, until the deferred California gain is recognized. A taxpayer who exchanged in 2016 and still holds the replacement property is filing it in 2026 — ten years later, same form, same tracked gain.
When it ends: on a taxable disposition of the replacement property. You remove the property from the 3840, report the gain, and attach an explanatory statement. If you exchange again instead of selling, the obligation simply rolls forward onto the new property.
When It’s Due
| Filer | Due (TY2025) | Extended |
|---|---|---|
| Individuals, estates, trusts | April 15 | October 15 |
| C corporations and LLCs taxed as C corps | April 15 | — |
| S corporations and partnerships | March 16 | — |
| Exempt organizations | May 15 | — |
The trap: S corporations and partnerships are due March 16, a month before the individual deadline everyone remembers. Straight from the FTB’s 2025 Form 3840 instructions and the form itself.
What the Form Asks For
- The exchange itself — dates and the qualified intermediary.
- The relinquished California property.
- Each replacement property received, wherever it sits.
- The deferred California-source gain, carried forward each year.
Multi-property exchanges: if you acquired more than one replacement property, all of them are tracked on a single Form 3840, and the deferred California gain is apportioned across them. You do not file a separate form per property.
No return, no clock.
What Actually Happens
There is no standalone statutory penalty for failing to file Form 3840 by itself, despite what most articles claim. The real exposure is R&TC §18032(b): if you fail to file both the 3840 and your return, the FTB may estimate your net income and assess tax, interest, and penalties on that basis.
The deeper risk is the statute of limitations. California’s normal four-year period under R&TC §19057 runs from the filing of a return. No return filed means the clock never starts, so unfiled years stay open indefinitely.
The FTB runs a dedicated compliance program on exactly this form: an initial contact letter, a follow-up with a 30-day response window, referral to the Audit Division, and then a Notice of Proposed Assessment. The full tax consequences are covered on our California 1031 clawback page.
Form 3840 Questions, Answered
Anyone — resident or nonresident — who exchanges California real property for out-of-state replacement property with any California-source gain left unrecognized. That includes individuals, estates, trusts, partnerships, LLCs, and corporations. Disregarded entities do not file; the owner files on the entity’s behalf.
Every year, from the year of the exchange until the deferred California gain is finally recognized in a taxable sale. There is no sunset and no year cap. An investor who keeps exchanging may file it for the rest of their life.
You still file. Form 3840 can be submitted as a standalone information return even if you have no other California filing obligation. This is the single most-missed provision for people who have left the state.
Talk to a CPA before doing anything. Because California’s four-year statute of limitations runs from the filing of a return, unfiled years generally stay open indefinitely. Remediation paths exist but depend on your specific facts.
The obligation follows into the next property. A later 1031 of the out-of-state replacement does not end it; report the new replacement property on the same Form 3840.
There is no standalone statutory penalty for failing to file Form 3840 by itself, despite what most articles claim. The real exposure is R&TC §18032(b): if you fail to file both the 3840 and your return, the FTB may estimate your net income and assess tax, interest, and penalties on that basis — and because the statute of limitations never starts without a filed return, the exposure stays open indefinitely.
No. Form 3840 is only triggered when the replacement property is outside California. A California-to-California exchange keeps the gain in the state’s system, so there is nothing to track.
You keep filing until there is a taxable disposition. FTB’s position is that California-source gain is determined when it was realized, not when it is later recognized, and California’s statute contains no cap tying state-source gain to the smaller federally recognized gain, unlike Montana. This realized-versus-recognized question is genuinely under-discussed; confirm your specific facts with a CPA.
Not sure whether you still owe the 3840?
Fifteen minutes, no pitch. We will map your exchange, whether the filing still runs, and what to hand your CPA. Read the full tax picture on our California 1031 clawback page first. Matt is not a tax or legal advisor and coordinates closely with your CPA and attorney.