Don’t Get Spooked by 10/31

What is a 1031 Exchange?

A 1031 exchange lets you sell one investment or business property and buy another “like-kind” real propertywhile deferring capital gains and depreciation-recapture taxes. Since 2018, 1031 applies to real property only (no personal property).

“Like-kind” is broader than it sounds: you can swap a condo for a small apartment building, land for a retail strip, etc., as long as both are held for investment or business use (not personal residence or a second home for personal enjoyment).

The Three Rules That Matter Most (a.k.a. the Not-So-Scary Stuff)

1) The 45-Day Identification Window (the “Pumpkin-Clock”)

• Starts the day you close on the relinquished property.

• You have 45 calendar days to identify replacement property(ies) in writing to your Qualified Intermediary (QI).

• Identification options:

  • 3-Property Rule: Name up to 3, regardless of value.

  • 200% Rule: Name any number, so long as total fair market value ≤ 200% of what you sold.

  • 95% Rule: Name any number and acquire at least 95% of their value.

2) The 180-Day Exchange Period (don’t let it turn into a pumpkin)

• You must close on one or more of your identified properties within 180 days of the sale (or by your tax return due date for the year of sale—whichever is earlier; filing an extension can preserve the full 180 days).

• These deadlines are hard—weekends and holidays don’t grant automatic extra time.

3) The Qualified Intermediary (QI) Is Your Chaperone

• You cannot touch the money. Proceeds go straight to the QI after your sale closes.

• The QI holds funds, receives your identification, and wires funds into the replacement closing.

“Is My Property Eligible?” (A Quick Litmus Test)

• Yes, if: You’ve been renting, business-using, or holding for investment.

• Be careful if: You’ve had significant personal use (e.g., frequent vacations at the property). Occasional de minimis personal use might be okay, but talk to your CPA about “held for investment” facts and intent.

• Primary residence? Not eligible for 1031, but there’s a separate §121 exclusion—ask your tax pro about combining strategies over time.

How Much Do I Have to Reinvest to Fully Defer Taxes?

To avoid taxable “boot,” generally aim to:

• Reinvest all net proceeds, and

• Purchase equal or greater value, and

• Replace any debt paid off with new debt or additional cash.

Boot (cash out or value reduction) is taxable. Sometimes taking a little boot is still strategic—plan it on purpose.

Timing Example (Halloween Edition)

• Oct 31, 2025: You close on your Waikīkī investment condo (the relinquished property).

• By Dec 15, 2025 (Day 45): You must identify your replacement property(ies) to your QI.

• By Apr 29, 2026 (Day 180): You must close on at least one of the identified properties (unless your 2025 tax return due date arrives first and you didn’t file an extension).

Hawai‘i-Specific Practicalities (Investor-Friendly Notes)

• 1031 is federal—but state tax treatment also matters. Hawai‘i generally follows federal rules for real-property exchanges, but state-level nuances (e.g., basis tracking, boot taxation, withholding on sales, etc.) can apply. Coordinate with a Hawai‘i-based CPA and your escrow officer early.

• Short-term rental rules and condo/HOA bylaws can affect investment strategy and projected income. Verify current zoning and STR regulations before you identify a replacement.

Common “Gotchas” (Don’t Let These Monsters Bite)

• Missing deadlines. Put the 45/180 dates on your calendar the day you open escrow.

• Touching the funds. Even a short detour into your account can kill the exchange—use a reputable QI.

• Vague identification. Street address and clear descriptions only; “that cute duplex near the poke shop” won’t fly.

• Tax return timing. If your exchange spans year-end, talk about filing an extension so you don’t accidentally compress your 180 days.

• Intent. Rapid buy-and-flip behavior can undermine “held for investment.” Keep records supporting investment intent.

A Simple 1031 Checklist (Pin This Before You List)

1. Interview & hire a QI before your sale goes hard.

2. Model the numbers with your CPA: projected gain, depreciation recapture, boot scenarios, and reinvestment target.

3. Line up options early—start touring replacement properties before Day 0, if possible.

4. Calendar your dates: Day 45 ID deadline, Day 180 close deadline, and tax return due date.

5. Paperwork hygiene: Precise identification notice to the QI, assignment of rights clauses, and escrow instructions referencing the exchange.

6. Close replacement and archive all docs (closing statements, QI escrow reports, identification letter).

7. Update your records: Basis and depreciation schedules for the new property.

Treat, Not Trick: Why Investors Love 1031

• Tax deferral = more capital working for you.

• Portfolio upgrades (e.g., trade into newer construction, better tenant mix, or higher cash-on-cash).

• Consolidation or diversification (swap multiple condos for one larger asset—or vice-versa).

• Geographic shifts while staying compliant with like-kind rules.

Want to Explore a 1031 Before 10/31 Turns to 10-Oh-No?

I can help you map the timeline, connect with trusted QIs and CPAs, and identify replacement properties that meet your cash-flow and appreciation goals—while staying safely inside the 45/180-day maze.

Quick DM or call, and we’ll keep the tax goblins out of your candy bowl. 🎃

Disclaimer: This blog is for educational purposes only and is not legal, tax, or accounting advice. Always consult your CPA, attorney, and a qualified intermediary about your specific situation.