Did you know that a 1031 Exchange allows you to defer taxes on the sale of an investment property when you purchase another investment property? You can exchange (sell and buy) almost any real property for another real property. A common misconception is that an exchange has to be a house for a house, a condo for a condo and so forth. That's not the case. It could be a condo for a home, land for a condo, two condos for a commercial property, or other type of exchange for fee simple real estate.
Deferring your capital gains lets you keep your money if you re-invest in another property (or properties) of equal or greater value.
You may, for example, decide to sell a property that is not performing well and replace it with a more productive property. Some of our clients have decided to sell a Maui property for something closer to home on the mainland. Some of our clients have sold mainland properties to make their Maui dream come true.
We bought a 3-bedroom house in Reno that our son lived in while in college and rented the other bedrooms to pay the mortgage. When he graduated, we sold that house using a 1031 exchange and leveraged it into two condos on Maui.
The 1031 Exchange can be a great planning tool to build wealth for yourself and your family and create your legacy. You can use strategic replacement properties to diversify your holdings and pass wealth to your heirs. Planning ahead means your heirs could inherit a property with a stepped up basis that could further reduce any capital gains and possibly be in locations that might better suit their future needs.
Property owners will need to work with tax advisors and a Qualified Intermediary in addition to a professional realtor to accomplish the exchange process.
Aloha Group Maui offers free seminars in Maui to inform the public about 1031 Exchanges and other wealth building opportunities in real estate.
Published in Neighbors of West Maui magazine - February 2018