Selling Real estate in Hawaii has us immersed in a second home market ripe with investors looking to transfer their investment funds using the 1031 Tax Exchange program on Maui pretty often. It’s important to know the facts and have the resources on hand when you need answers you can trust, especially when looking to invest somewhere disconnected and far from home – like Hawaii.
Fidelity National Title gives a great explanation on a what 1031 Exchange actually is:
Section 1.1031, of the Internal Revenue Code of 1986, as amended, offers real estate investors one of the last great investment opportunities to build wealth and save taxes. By completing an exchange, the investor (Exchanger) can dispose of their investment property, use all of the equity to acquire a replacement investment property, defer the capital gain tax that would ordinarily be paid, and leverage all of their equity into their replacement property.
Whoa. Did you READ that right??? Yes, you sure did. And it’s got investors saving hand over fist in an incredibly HOT market on Maui. You sell your investment, and then roll the capital into another and save a ton on taxes.
… ON 2 CONDITIONS.
1.). Exchange must be for “like-kind” – ie. residential for residential, or commercial for commercial, etc…
2.). No cash or additional benefit may be acquired unless you pay capital gains taxes on it.
WHAT DOES IT TAKE?
The IRS demands that once your property is sold, it is placed with an intermediary entity called an ‘Accommodator’ who is in charge of holding the funds. The Exchanger then has 45 days from the date of close to identify 3 possible replacement properties.
… 3 FINAL REQUIREMENTS.
1.). Purchase must be of equal or greater value.
2.). All equity must be re-invested.
3.). Equal or greater debt. (with an exception that a reduction can be offset with additional cash, but a reduction in equity cannot be offset by increasing debt.
Once the 45 days have passed, the property identification list cannot be changed and everything must be logged and in writing with the accommodator to show that we are abiding by specific guidelines.
So the GENERAL 3 RULES
- The new purchase must be the same or greater value than the relinquished.
- Reinvest all of the exchange equity into the replacement property
- and obtain the same or greater debt on the replacement property as the one relinquished.
Both properties must be sold and acquired for income and/or investment purposes.
Here’s the full article from Fidelity National Title that explains these specifics.
More questions? Who can HELP?
Julie Bratton with OREXCO is the local expert and the person to call when considering a 1031 tax exchange on Maui. Old Republic Exchange has also created this awesome video to help with understanding the process of 1031 tax exchanges.
Here’s also a brochure to explain some of the particulars. ORE Brochure 2018
If you’re strongly considering, Julie is so easy to talk to and she can help with understanding all kinds of ways the exchange program works – including deferred, reverse and simultaneous. Her experience has proven a strong track record in guiding homeowners to successfully achieve their investment goals. Don’t be afraid to reach out!
Julie Bratton (formerly Tumbaga) – Hawaii Representative
Maui provides an amazing landscape for the investor looking for a 2nd home that can generate some passive income through the short term rental market when you can not be here to enjoy. World-class beaches, dining, and shopping are all at your fingertips and the weather is fantastic year-round. As time goes by, you can spend more time here enjoying your investment. This is the ultimate retirement plan. Curious about an investment on Maui? Reach out, let’s get your toes in the sand.
With aloha, Erica Haleakala – 808-281- 4107
Wailea Realty Corp | Windermere Maui | The Shops at Wailea, Maui Hawaii.
One of my favorite pastimes since relocating to Maui almost 10 years ago is actually the State Sport – paddling in a 6 man outrigger canoe. There’s nothing like greeting the sunrise from the water at the dawn of a new day. I have met so many friends and developed an extended family or “ohana” while playing on the beach in the summertime. I give my time to my canoe club Lae’ula o Kai on the Board of Directors, and I feel supported by a community of professionals and participants with a common interest. From the kupuna (elders) to the keiki (children), it enriches your lives to interact on a recreational level. There are so many Reasons Maui and the beach are good for You.
This article posted in the Ka’hiau – community segment of The Maui News talks about my passion for paddling canoe and how you can get involved.
Practices begin early in the year and get more intense during springtime in preparation for the summer regatta season. Get it touch if you want to participate! They place you by division so you will always be amongst others at your age and skill level.
You know they say life expectancy is great in the islands, and I think we can attribute that to a more active lifestyle (in our earlier and later years), and a more relaxed pace and lifestyle. I relocated from the Los Angeles market almost 10 years ago and can help others considering Relocating to Maui. I look forward to connecting with my clients and introducing them to Maui’s best neighborhoods.
There’s something for everybody in Hawaii. If you’re considering a change, reach out!
Life is short, let’s get your toes in the sand.
Furry friends belong in paradise too! Ever wonder which luxury developments in South Maui allow pets? Take a look at these popular Wailea developments when considering where to purchase a home in South Maui that your pet can enjoy too!
Kai Malu – This is an excellent option for someone looking for more space and to spread out. 150 2-story units total, some with a downstairs master. These sophisticated townhouse style units are built in 2007, with fresh spaces and high ceilings. A refined complex with infinity pool, and pavilion perfet for entertaining and well situated on 25 hillside acres of golf course. You’ll notice many full-time residents in this community, as no short-term rentals are allowed.
Kanani Wailea – built in 2007, 38 home sites on 8 hillside acres. The lowest priced large footprint condominiums in all of Wailea. Over 2000 sq. ft. and starting in the low million range, these have high end finishes and are about half way down the hill so you still catch views and backlit sunsets. A great option for someone who wants the space but not the yard maintenance. No short term rentals are allowed in this gated development.
Keala o Wailea – Built in 2017, there are 69 brand new 2 and 3 bedroom units perched on the hillside just as you come into Wailea. This well thought out development was affordable with pricesstating at 819k, and they were 95% sold when they released the first set of keys last month. New construction is catching a lot of attention in South Maui, and there are 2 left in this location. No vacation rentals allowed.
Makali’i at Wailea – Just breaking ground and already 65% sold, these 68 luxury modern 2-3 bedroom townhouses are starting in the 1.3 range. The team at Armstrong has promised us a “view above the treetops”, and a product much more modern and contemporary than Wailea has ever seen before – think “Andaz”. It’ll be exciting to see what the finished product is like and what kind of owners end up residing there as this one is for long term residents only.
Polo Beach Club – Absolute supreme South Maui complex next door to the famed Fairmont Kea Lani hotel. Built in 1982, this is a 71-unit high rise is on 2.5 acres of the most pristine sandy beachfront. Enjoy an active lifestyle with regular beach walks and picturesque sunsets from your lanai. Well performing short term rentals are generated from this one-of-a-kind location.
Ekahi – From studios, to 2 bedroom townhouse style units, this large development of 294 units graced Maui in 1976. Well located on 34 acres with easy access to the beach, world-class resorts and golf. A great option for one looking for passive income or possibly a place to return to year after year with minimal maintenance.
Ekolu – Known for excellent location and affordability, these 146 units span from small studios to large 2 bedrooms with garden and ocean views. Built in 1979 and on 18 hillside acres of golf course, this is a very desirable place to spend an island vacation, as evidenced by the popularity of short term rentals found here.
Elua – Known for ample sized footprints, some units with independent garages, the easy beach access, and extraordinary views. These 152 larger scale units were built in 1977, and provide easy access to beach walks and activities on 24 acres of South Maui beachfront. Luxury vacation rentals are allowed in this complex.
Wailea Fairway Villas – Newer development built on the top of the hill in 1998 with 118 townhouse style units on 12 acres of golf greens. Higher ceilings and lofts make this a comfortable place for long term living. Stable neighbors with no short-term rentals allowed. These are a great “lock and leave” investment in Wailea.
Wailea Palms – 120 units and 16 2 story units, known as phase 2 of the development allows pets but does not allow short term rentals. Concrete construction keeps the units cool and they’re just a short stroll to Keawakapu beach. Another terrific option for the long-term resident looking to be central.
– The ultimate in South Maui luxury. These front row, high end luxury condominiums are awesome for someone who wants the best in everything. Large floorplans, wide open spaces, and private lanais are what you can expect from these units. Panoramic views from some, reach out and touch the ocean from others… these 130 units are on 28 acres of oceanfront, directly on the beach path in a complex full of amenities for only the most exclusive buyers.
If you’re interested in honing in on the development that is right for you, reach out.
Let’s talk. Aloha, Erica