Hawaii 1031 Exchanges

1031 Exchanges - Growing Wealth Smartly...


Usually, when an investor sells an investment property for a greater value that what was paid for it originally, any profit from the sale is subject to capital-gains tax. Time to speak to a tax advisor and/or financial planner. 

Thinking of conducting a 1031 Exchange in Hawaii? Contact Us Today


But thanks to IRS' Section 1031 of the tax code, an investor can sell their old investment property 1031 Exchange in Hawaii(relinquished property) and use all of the equity to purchase a new investment property (replacement property) — all while deferring the capital-gains taxes that would usually be applied to the sale. Known as a 1031 Exchange or 1031 Tax-Deferred Exchange, this type of transaction allows an investor to reinvest the proceeds from the sale without having to pay additional taxes - which can be quite substantial. In addition to which, typical withholdings, such as HARPTA (7.25% of amount realized) and FIRPTA (generally 15% of amount realized) are not applicable when conducting a qualified 1031 Exchange. 

Undoubtedly, this makes Section 1031 one of the greatest wealth building tools in the tax code. But it’s also one of the most under-utilized. c

Search all Hawaii Real Estate Properties for options that suit your needs in terms of price, size, location, etc. Remember, on the buying side / replacement side, the Sellers must agree to being a part of the 1031 Exchange at no liability or cost to them. Have you found an option to purchase or thinking of selling your current Hawaii Property to participate in a 1031 Exchange? Contact Us.

1031 Exchange Requirements


Like-Kind Property -  In order to qualify for a 1031 Exchange, an investor must purchase “like-kind” property with the gains from the old investment property. The term 'like kind' can be misunderstood to mean 'a condo for a condo' or 'commercial building for commercial building', but that is erroneous. 'Like kind' can be interpreted as the sale/purchase of an investment property across several categories, such as office building, single family rental, law land, duplex, motel, apartment buildings or condos therein, even the rights to a 30 year lease.  In general, this definition is pretty broad and it is best to speak to a reputable 1031 Exchange Qualified Intermediary for clarification.

Timelines - All exchanges are subject to strict timelines. For example, the investor has 45 days to identify a “like-kind” property of equal or greater value after closing the sale of the relinquished property. Then the investor has 180 days from the date of the original sale to close on the purchase of the new investment property.

Intermediary - Hawaii Investment PropertyThere are multiple terms used, to include Facilitator, Accommodator, but as per Treasury Regulations, the term is 'Qualified Intermediary' - this is the party that facilitates the exchange for the Exchanger, as monies from the relinquished property cannot go directly to the Exchanger.

Investment - Both properties must be investments. For example, one cannot sell a primary home and purchase an investment property, or vice versa. To learn more about IRC 121 and how that may be applicable for the purchase of a personal-use property, contact us.

Equal or Greater Value: Investors must exchange properties with those of equal or greater value. For example, if an investor sells a property for $1.5 million, he or she must purchase at least $1.5 million in property. That property, however, can come in the form of multiple properties or a single one. If the purchase is for a property of lesser value than the relinquished property, that creates a 'boot', which will be a taxable portion of the monies realized. It's not uncommon for an investor to want to roll some of the value of the relinquished property into a replacement while keeping some cash - so long as tax implications are understood beforehand to avoid surprises.

Questions commonly asked:  Can I sell my primary residence and roll the monies into a 1031 Exchange? Or can I use the monies from my relinquished investment property and buy a personal residence or vacation home? Short answer: Speak to our preferred 1031 Exchange vendor who can explain applicable rules regarding IRC 121 Primary Residence Exclusion and safe harbor rules. 

So when is it the right time to buy an investment property? The short answer, it is dependent on the specific goals and timeframe for an individual investor. A 1031 Exchange allows the investment to grow, all while the bulk taxation is deferred. Because there is no limit on how many times an investor can roll over gains from one investment to the next, one is able to profit on each swap and only required to pay tax when property is relinquished without replacement.

The Hawaii real estate market presents a plethora of opportunities to take advantage of 1031 Exchanges, to include short-term rental condos, commercial properties, even raw land. Our team of agents have pertinent experience in assisting investors Statewide, whether buying a Wailea condo, a vacation rental in Princeville, a Kona home, or a Kakaako luxury condo, we have a qualified expert to assist. And our network of 1031 Exchange Intermediaries will make the process as seamless as possible.

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Our team members have decades of combined experience in assisting clients in both the sale and purchase of properties in Hawaii via a 1031 Exchange throughout the entire State. Let our experience be your advantage.

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