The purpose of exchanging under Code 1031 is to defer capital gains tax (15% Federal, 7.25% State of Hawaii) thereby allowing reinvestment of all sale proceeds. Hawaii residents and non residents doing a 1031 exchange are exempt from withholding 5% of the amount realized on that sale of real property. Unless selling improved real property for raw land, an excahnge also avoids depreciation recapture.

A 1031 exchange is similar to a traditional IRA or 401K retirement plan. When someone sells assets in tax-deferred retirement plans, the capital gains that would otherwise be taxable are deferred until the holder begins to cash out of the retirement plan. The same principle holds true for tax-deferred exchanges or real estate investments. As long as the money continues to be re-invested in other real estate, the capital gains taxes can be deferred. Unlike the aforementioned retirement accounts, rental income on real estate investments will continue to be taxed as net income is realized.

REALTOR® Kathryn Petty-Tubman (S) is an 1031 exchange expert on Maui. She understands the ins and outs of South Maui, specializing in the upscale communities of Wailea and Makena, adjacent to comfortable, vibrant Kihei and just 30 minutes from the Kahului Airport.

For more information on 1031 exchange on Maui, don't hesitate to contact Kathryn Tubman at (808)276-3311. You can also browse our website and be sure to check back regularly for daily updated listings. Our website is userfriendly that offers a wealth of information on Maui real estate.

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