1031 Exchanges in Honolulu Part 1
A tax-deferred exchange enables real estate investors to preserve wealth by re-investing in “like-kind” assets. When real property is sold, an investor may incur federal capital gains tax and, in some states, state tax as well. A tax-deferred exchange allows investors to sell investment properties and acquire “like-kind” properties while deferring federal capital gains tax. Many states with a capital gains tax offer a similar tax advantage.
Section 1031 of the Internal Revenue Code provides a remarkable opportunity to build wealth by deferring taxes. Within carefully defined limits, investors may carry forward gains made on one property into another one, deferring capital gains tax, allowing full use of equity in the acquisition. The Internal Revenue Code rules can be rather complicated, so be sure to consult with your tax professional. Let’s cover some of the important points.
What is “like-kind”?
“Like-kind” does not mean “exactly the same” regarding exchanges of real estate. A condominium rental unit may be exchanged for a single family rental or other real property like a retail center, office building, farm property or a leasehold interest in real estate of 30 years or more. Most real property is considered “like-kind” to other real property.
Identification Period (45 Day Rule)
The replacement property must be identified within 45 days of the transfer of the first relinquished property.
Exchange Period (180 Day Rule)
The replacement property acquisition must be completed by the earlier of:
(1) 180 days of the transfer of the first relinquished property or
(2) the due date of filing your federal income tax return for the year in which you transferred the first relinquished property, including filing extensions.
Weekends and Holidays
If the 45th day falls on a Saturday, Sunday, or holiday, the replacement identification should be completed on a preceding business day. Similarly, if the 180th day falls on a Saturday, Sunday, or holiday, the exchange must be completed on a preceding business day.
Please contact Michael Zimmerman if you have a specific question about 1031 exchanges or visit my web site to find investment opportunities using my Honolulu home search.
This information is provided as a courtesy only, is not a warranty and should be independently investigated by buyers. This information is deemed reliable, but NOT guaranteed. Consult your attorney and tax advisor before you exchange investment property.
You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.
