The first step in determining if a 1031 Exchange is right for you is by speaking with your Tax Advisor. If the real estate you plan to sell has been held for business or investment purposes and if you plan to buy another property, (equal to or greater in value to what was sold) that will also be held for investment purposes, an exchange may the best vehicle to help you defer Capital Gains Tax. It’s important to run the numbers to determine if you are selling at a loss, or at a gain. That can be done on our website by plugging your numbers into our Capital Gains Tax Estimator. From there, please reach out to us and we will cover the exchange process and prepare you for what to expect. Please keep in mind that Leasehold Property has certain parameters and may be treated differently than Fee Simple Real Estate.

The benefit of a 1031 Exchange is to defer all of the Capital Gains Taxes that would normally be due. You do this by purchasing property that is considered like kind and that is equal to or greater in value than what was sold. If you are selling Hawaii investment property and are a non-resident of Hawaii you may be able to avoid the HARPTA withholding.

Unfortunately you cannot build on property you already own through a 1031 Exchange. You have two problems with that. Number one is that you already have control of the land underneath. In a 1031 Exchange you are purchasing the land, or best explained as the dirt as a part of the real estate transaction. This is not occurring when you already own the property. Number two, what you would be building are improvements and improvements are not considered like-kind to real estate in an exchange. The whole idea in a 1031 Exchange is to buy like-kind real estate. Unfortunately, improvements or Goods and Services are not considered like-kind to what you are selling which is real estate.

Because 1031 Exchange Companies are under specific rules in how we return 1031 funds, it is important to understand that the funds will be held for a certain amount of time, depending on how your exchange unfolds. You have 45 days to identify potential Replacement Property. If you cannot identify anything on day 45, you simply let us know and we can return your funds on day 46. Since your exchange has to fail first we cannot return and portion of your funds until day 45 passes.