Combined rate and how to defer it in California.
At 37.1% combined (20% federal + 3.8% NIIT + 13.30% state), California has the highest capital gains rate in the country. On a $500,000 gain, that is roughly $185,000 going to the IRS and Sacramento before you reinvest a dollar.
California taxes capital gains as ordinary income at up to 13.30%, the highest state rate in the nation. At that level, the 1031 exchange case is hard to argue against. Use the capital gains tax calculator to see the full bill including depreciation recapture.
A 1031 like-kind exchange defers the entire 37.1% combined rate by reinvesting into a like-kind replacement property. Model your specific numbers in the 1031 exchange calculator and get your exact deadlines from the timeline calculator.