1031 Tax Exchange

If you are thinking of selling and buying Maui real estate, you may qualify to participate in a 1031 exchange.

  • A 1031 Exchange enables the property owner to defer or completely eliminate potential taxes associated with the sale of real property.
  • A 1031 Exchange refers to a real estate transaction realized under the rules of Section 1031 of the Internal Revenue Code in order to defer relevant taxes until a future date. (Section 1031 provides that no gain or loss shall be recognized for tax purposes on the exchange of property held for productive use in a trade or business, or for investment.)
  • A typical transaction involves a property owner trading a property for another "like kind" replacement property. The IRS sees the transaction as having reinvested the sale proceeds into another property thus no economic gain has been realized that would generates the funds to pay the taxes.
  • The IRS allows the taxpayer 45 days to identify a replacement property and 180 days after the date on which the taxpayer transfers the property relinquished in the exchange, or the due date of the tax return for the year in which the property was relinquished.
  • Real properties generally are of like-kind, regardless of whether the properties are improved or unimproved. However, real property in the United States and real property outside the United States are not like-kind properties.
  • The following do not qualify for an exchange: Stocks, bonds, loans, partnership interests, personal residences and certificates of trust.
  • For further information refer to the IRS (Like-Kind Exchanges Under IRC Code Section 1031)

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