ALOHA!

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

877-591-1031 direct

jbratton@oldrepublicexchange.com

http://orexco1031.com

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.