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1031 Tax Deferred Exchanges

Maui is a popular choice for vacation and second home owners. Consequently, many real estate transactions on Maui involve 1031 tax exchanges.

What is a 1031 Exchange?


A 1031 tax deferred property exchange is an exchange in which capital gains tax deferral is available to real estate owners who sell their investment, rental, business or vacation real estate and reinvest the net proceeds in other real estate. Real estate held for these purposes is called a like-kind/1031 property. A section 1031 real estate exchange is simply a method by which a real property owner disposes of one property and acquires another without having to pay capital gains tax on the transaction. In addition, there is a 25% depreciation recapture. This can be significant for properties that are fully depreciated. In an ordinary sale transaction, the property owner is taxed on any gain realized by the sale of the property. In a section 1031 real estate exchange, the tax and recapture on the sale are deferred indefinitely.

Property owners may sell like-kind properties and defer taxes on the sale's profits by meeting the requirements of Internal Revenue Code (IRC) 1031 exchange. The purpose of the 1031 Exchange is to allow sellers of like-kind property to buy replacement property of like-kind within a specific time period and defer taxes.

Contact The Maui Real Estate Team today if you are interested or need assistance buying or selling Maui 1031 exchange properties.