1031 Exchanges on Oahu

Have you heard of a 1031 Exchange? This is a financial transaction where you sell investment or business property to buy other similar property with your equity, following the rules of Section 1031 of the Internal Revenue Code. In selling and exchanging the property for another, your capital gain on the original sold property is non-taxable at the time of sale and deferred to the future, or in certain circumstances, possibly even eliminated. Doing a 1031 Exchange can be beneficial for many investors who have property with significant equity and who would have taxable gain when they sell, and can be an important part of a long term strategy for building wealth.

Why Think About Doing A 1031 Exchange Now?

  • The equity you currently have in your property is not making you any money. Your property is appreciating at the same rate, whether you have $100K in equity or $1,000,000. Why not use that equity as capital to invest in other properties and continue to build wealth and expand your real estate portfolio? There has been no better time in history to take advantage of low interest rates and great deals on properties.
  • Or perhaps you would like to access some of your equity in your property, but not all of it …? 1031 exchanges can be done as partial exchanges. Not all gain would be taxable upon sale, only the part that is not reinvested into a “like-kind” property under 1031 rules. Taxes would still be owed on the part that you take out, called the “boot.”
  • And speaking of “boot,” you should be aware that if a partial exchange or even a regular, non-1031 sale of investment property (i.e., without the purchase of a replacement property) is a consideration for you, there is no time like the present. long term capital gains taxes are at 15% for the year 2017 and could possibly go up to 20% or more, in the future. At HOME SHOPPE HAWAII, we’d be happy to help you list your property now and save on your capital gains taxes this year, versus selling when taxes may be higher.

The rules for doing a 1031 Exchange are complex and require the involvement of a 1031 Exchange Qualified Intermediary and an experienced REALTOR. At HOME SHOPPE HAWAII, we have the expertise to facilitate your 1031 Exchange by linking you with 1031 Exchange Qualified Intermediaries, selling your investment, and finding you the appropriate replacement property or properties. HOME SHOPPE HAWAII also has a highly regarded Property Management Division, which includes not only Rental Management, but Concierge Services, for the ongoing maintenance of properties of absentee owners are not renting out their properties. We are full-service, full-time.

Frequently Asked Questions

Q – What are the basics of a valid exchange under Section 1031?
There are four things to keep in mind. First, the property involved in the exchange must qualify (not be specifically excluded). Most real property qualifies. Second, the exchanged properties must be held or used for trade, business or investment. Third, the property exchanged must be like-kind; for example, real property for real property. And finally, you must use a Qualified Intermediary to facilitate the exchange – taxes on any proceeds you receive (intentionally or unintentionally) will not be deferred. Call us, we can help you determine if your situation qualifies.

Q – I purchased this property for my primary residence, but for the last 3 years, I have been renting it out. Does this property qualify?
Most likely, yes! It does not matter how you acquired your property, it matters how it has been held or used for the last full two years (this is a recommended period), and how you intend to use the replacement property. Under the proper purpose requirement, the relinquished property and the replacement property replaced must be used for trade, business or investment.

Q – I own a piece of land in California. Can I take advantage of a 1031 and exchange this property for a condominium in Hawaii?
Most likely, yes! The transaction must involve “like-kind” property – meaning the property relinquished, land (real property), must be replaced also by real property (condominium). All qualifying real property within the United States is like-kind. But don’t forget proper purpose – both properties must be used for business, trade or investment.

Q – I have two separate properties and I would love to sell them to purchase one – can I use a 1031 Exchange?
Most likely, yes! The exchange does not have to be one-for-one, it must be like-kind. If both relinquished properties qualify, you can replace them with one qualifying property. Conversely, you can relinquish one property, and replace it with two, or three. I can explain the limits more fully when you call.

Q – Do I have to close on the sold (relinquished) property and purchased (replacement) property on the same date (simultaneous closing)?
No, but there are time constraints. You will have to designate a replacement property or properties (there are limits to how many, or the value of the, replacement properties) within 45 days of closing on your relinquished property. Closing on your replacement property must occur within 180 days of closing on your relinquished property. There are no exceptions, or extensions.

Q – What happens if I find my replacement property first?
That’s great! You can still qualify for a 1031 exchange – and this would be called a reverse exchange. The IRS has issued “safe harbor” guidelines for reverse exchanges, and provided the guidelines are followed, the exchange may qualify. This will require specific planning, please call me to assist you.

Q – My replacement property is in a great location, but requires some work – can I use some of the proceeds for construction?
Yes, depending upon the circumstances. Exchange proceeds can be used to improve the replacement property. However, the construction must begin prior to title being transferred. While the property is being improved, the qualified intermediary (QI) would hold title and use the exchange funds to pay for the construction. Prior to the expiration of the 180-day period, the QI would transfer title to you. Partial construction also qualifies as replacement property. If this something you are considering, call me so I can more fully explain.

Q – How can I find out more?
Home Shoppe Hawaii would be happy to help. Please call me at (808) 721-8088 or email Yvonne Ahearn, Principal Broker, at We look forward to connecting with you.

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