1031 Tax Deferred Exchange

Looking to Exchange into or out of a Hawaii property? We can help!

We have experience in completing exchanges for most situations through the last 25 years, including; foreign owners, leasehold properties, multiple property exchanges, delayed and simultaneous exchanges.

A 1031 Exchange can be a great way to exchange investment or business properties and defer payment of taxes due on capital gains to a later date, but an exchange can also be very complicated.

You will require the services of a Facilitator, also known as an Exchange agent, Intermediary, Accommodator or Straw man. CAUTION: Never use an individual as your Facilitator. Be sure your Facilitator is a registered corporation, with more than one officer.

To start your Exchange, there are definite steps which should be taken:

1. Talk to a good tax accountant to determine whether or not there would be substantial gains on the sale of the relinquished property to justify the exchange.

2. Select an Escrow company who is familiar with exchanges, preferably one with a separate Facilitator.

3. You may also need a good Real Estate Attorney to draft the Exchange documents, if the Escrow company does not have one.

Another consideration of doing an exchange, is the added costs. A delayed exchange would cost an extra $900 to $1500 or more, however a reverse exchange would probably cost $7500 and up, depending on the complexity of the exchange.

Care should be taken to make sure the proper language is inserted in all documents. This includes the listing documents as well as the Sales and Exchange documents. Failure to property document each step of the exchange, could jeopardize recognition of the exchange by the IRS, a very costly mistake.

There are many variations that can occur, in the form of the exchange. The most common exchange is the delayed exchange, as it gives the client the necessary additional time, to select and close on the replacement property. In most cases, neither the Buyer of your property, nor the Seller of the selected replacement property, may be doing exchanges.

Using people such as Realtors, who are knowledgeable in the rules and regulations of exchanges, is very important. The IRS has set up a strict set of guidelines and time lines for completing exchanges. No variation of these rules is allowed.

Did you know that while you have up to 180 days to complete your exchange, you only have 45 days after closing the relinquished property, to select the replacement property? Or that your 180 days could be cut short based on your tax filing date? Or that some Leasehold property can be exchanged for Fee Simple property?

Due care should be exercised in processing an exchange, especially if it involves a reverse exchange, leasehold property or if the person doing the exchange is foreign. In any event an exchange should be properly planned.

We would like to help you obtain your goals and complete your exchange, with as little hassle as possible. We can help you select the proper Facilitator, Escrow company and Exchange Attorney, while keeping your costs to a minimum.

Please keep Aloha Properties in mind, when it comes time to complete your exchange. We’re here to help.

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