Finance
What is '1031 exchange' (like-kind exchange) and how might it benefit a Hawaii real estate investor?
AA. A tax exemption available only for Native Hawaiian homestead properties
BB. A federal tax provision (IRC Section 1031) allowing deferral of capital gains taxes when selling investment property if the proceeds are reinvested in like-kind property within specific timeframes✓ Correct
CC. A special mortgage program for investors with 10 or more properties
DD. A Hawaii state tax credit for reinvesting in Hawaii real estate
Explanation
A 1031 exchange allows investors to sell investment property and defer capital gains taxes by reinvesting in 'like-kind' property. Key rules: use a qualified intermediary, identify replacement property within 45 days, close within 180 days, and reinvest all net proceeds. In Hawaii's high-appreciation market, 1031 exchanges preserve capital for reinvestment, potentially allowing tax-deferred wealth building.
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