Understanding 1031 Tax-Deferred Exchanges on Ono Island
By Meredith Amon, Licensed in Alabama and Florida
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As a real estate advisor and homeowner on Ono Island, I frequently work with buyers and sellers exploring ways to strategically manage capital gains when transitioning from one investment property to another. One of the most effective tools in real estate investment is the Section 1031 exchange, also known as a tax-deferred exchange. This guide is designed to help you understand how a 1031 exchange works—particularly if you're considering buying or selling investment property on Ono Island.
That said, I am not a tax advisor or CPA, and I strongly encourage you to consult with your accountant or qualified tax professional before pursuing a 1031 exchange.
What Is a 1031 Exchange?
A 1031 exchange allows you to defer capital gains taxes on the sale of an investment or business property when you reinvest the proceeds into another “like-kind” investment property. The idea is simple: instead of cashing out and paying taxes on the gain, you roll that gain into another qualifying property, preserving your equity and deferring taxes until a future sale.
This is particularly useful on Ono Island, where property values have seen strong appreciation and investors may be looking to shift portfolios—from rental properties in one location to a second home, long-term rental, or even a vacant lot with future build potential here on the island.
Qualifying for a 1031 Exchange
To use a 1031 exchange, the following conditions generally apply:
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Both properties must be held for investment or business use. Your primary residence or second home typically does not qualify unless it is rented out and meets strict use requirements.
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The property you acquire must be of like-kind. This means it must be another real estate investment—not stocks, vacation club memberships, or personal property.
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You must use a Qualified Intermediary (QI). You cannot touch the sale proceeds yourself; they must be held and transferred by a third-party QI.
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Timeline is strict.
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You must identify your replacement property within 45 days of selling your relinquished property.
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You must close on the replacement property within 180 days.
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These timeframes are non-negotiable and monitored closely by the IRS. Again, please speak with your CPA to determine what qualifies in your situation and to verify deadlines based on your specific closing date.
Can You Use a 1031 Exchange to Buy Property on Ono Island?
Yes, and I’ve worked with several clients who have done exactly that. For example, an investor may sell a rental duplex in another part of the country and use the proceeds to acquire:
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A vacant lot on Ono Island held for future development
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A single-family home used as a long-term rental
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A second home that is also rented out seasonally and meets IRS use standards
The key is intent and use. If the new property on Ono Island is held for investment and not strictly for personal enjoyment, it may qualify. But again, I am not a tax advisor and strongly recommend reviewing your strategy with a CPA or 1031 exchange specialist before entering into any contract.
Can You Sell a Property on Ono Island and Do a 1031 Exchange?
Absolutely. If you own an investment property on Ono Island—such as a home that you rent out long term or a lot purchased for appreciation—you may be able to defer your capital gains tax by reinvesting in another like-kind property elsewhere.
Some clients have sold on Ono Island and exchanged into:
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Income-producing condos in other beach markets
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Multi-family rental properties
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Commercial real estate in other states
The most important factor is how the property has been used, and whether that use qualifies it as an investment property under 1031 guidelines.
Does the Property Have to Be the Same Type?
The term “like-kind” is broader than it sounds. You do not have to exchange a canal-front home for another canal-front home. You could sell a lot and buy a home, or sell a rental and purchase a lot intended for future development. As long as both are real estate and held for investment, they generally qualify as like-kind.
Important Considerations Before Starting a 1031 Exchange
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Work with a team: This includes your real estate advisor (I’m happy to assist), a CPA, a qualified intermediary, and possibly a real estate attorney.
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Timeline discipline is critical: Missing the 45-day or 180-day deadlines can disqualify the entire exchange.
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Proper documentation is key: All contracts and disclosures must reflect the 1031 nature of the transaction. Your CPA should assist with filing IRS Form 8824.
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Intent must be clear: Make sure your investment purpose is documented. If you’re buying a home that will eventually become a personal residence, consult your accountant on proper timing and use.
Final Thoughts
The 1031 exchange is a powerful strategy for building wealth and transitioning real estate portfolios, but it’s not something to enter lightly. I’ve seen it work beautifully for clients investing on Ono Island, but I’ve also seen missed deadlines and misunderstanding lead to unintended tax consequences.
While I’m always available to help guide you through the process from a real estate perspective, I want to be very clear that I am not a tax advisor or CPA. Every situation is different, and your financial advisor or accountant is the best person to help you assess eligibility and benefits.
If you’re thinking about buying or selling property on Ono Island and wonder whether a 1031 exchange might apply, let’s schedule a time to discuss your goals and explore opportunities that align with your long-term investment strategy.
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