The beachside communities of Hanalei and Ha’ena are located in the first Kauai certified Opportunity Zone, allowing Qualified Opportunity Funds to invest in Kauai’s north shore real estate.
The Opportunity Zones Program
According to the IRS, over 8,700 Opportunity Zones in all 50 states were added to the US tax code as an economic development tool, designed to spur economic growth and job creation, by providing tax incentives to taxpayers. There are two certified Opportunity Zones on Kauai. The second zone includes Kukui’ula and Koloa communities on the South Shore of Kauai.
Hanalei Opportunity Zone
The entire Hanalei Bay is ringed by white sand beach and features coveted boat moors in the summer, and epic surf during the winter months. Three-time world surfing champion Andy Irons and his brother Bruce Irons, winner of Eddie Aikau Invitational contest, were born and raised in Hanalei. The area around the bay is the pretty community of Hanalei where tourists mix with full-time and part-time residents, enjoying life the way it’s meant to be: Slow and easy.
Ha’ena Opportunity Zone
The community of Ha’ena is the end of the road and the last stop to heaven. Limahuli Garden is part of the National Tropical Botanical Garden and features a spectacular vista of this community’s beaches. In the late ’70s Ha’ena area residents began making necklaces of shells. Local property owner Howard Taylor gave one of the necklaces to his famous sister, Liz, which led to the North American puka shell craze.
Qualified Opportunity Fund
A taxpayer may defer paying tax on unrealized capital gains by investing those gains in a Qualified Opportunity Fund within 180 days of the sale or exchange of the shares or property. The tax payment is deferred until the earlier of:
- The date the investment is sold or exchanged, or
- December 31, 2026
Any taxpayer may create a Qualified Opportunity Fund for the purpose of investing in Opportunity Zones and the fund is self-certified by following IRS guidelines.
Opportunity Zone Real Estate Investments
Real estate investments must include substantial rehabilitation, doubling the basis within 30 months. For example, if the Opportunity Fund invests in a $600,000 Opportunity Zone vacant land purchase, at least $600,000 in improvements must be invested in the land within 30 months of its acquisition.
If the Opportunity Fund invests in property with existing improvements, the land is excluded when applying the substantial rehabilitation rule: Only the value of the buildings needs to be doubled.
Looking for Opportunity Zone property on Kauai? Contact me — Lori Decker, Kauai Opportunity Zone specialist.