How do real estate investors pull their investments out of California without getting hit by a huge capital gains tax? In this video, Daniel Van Slyke, an attorney licensed in California and Texas, explains how the 1031 Exchange makes this possible. This video starts by exploring the reasons some real estate investors are leaving California, including the high costs of business, the lawsuit environment, and legislation and regulations adverse to landlords. Through a 1031 Exchange, the taxpayer can defer paying federal capital gains tax when selling one investment property and purchasing another of equal or greater value. The California Franchise Tax Board allows for deferral of California’s capital gains tax where the taxpayer follows the rules of the 1031 Exchange. However, California has additional reporting requirements. No matter where the newly purchased replacement property is located, California requires an annual report and payment of the deferred capital gains tax when the replacement property is finally sold. You can check out of California, but you can't leave California’s capital gains tax behind! California will follow your replacement property until you die, donate the replacement property to a non-profit, or pay California’s capital gains tax.