South Shore Kauai’s private resort community of Kukui’ula experienced a strong 2019 with 37 homesites and 13 homes sold, for a total of $81.8 million in sales, according to MLS data. There are currently 18 homesites listed on the Kauai MLS, all qualifying as Opportunity Zone Property.
Kukui’ula Located in Kauai’s Certified Opportunity Zone
In late 2018 Kukui’ula was included in one of two Kauai Qualified Opportunity Zones (QOZ) certified by the Secretary of the U.S. Treasury. The Tax Cuts and Jobs Act (TCJA), passed in December 2017, added the Opportunity Zones to the tax code, as well as 26 USC section 1400Z-2 to provide certain incentives for taxpayers to invest capital gains in Opportunity Zone Property (OZP).
Opportunity Zone (OZ) Real Estate Investments
OZ Real estate investments must include substantial rehabilitation, doubling the basis within 31 months. For example, if the Qualified Opportunity Fund (QOF) invests in a $950,000 Opportunity Zone vacant land purchase (OZP), at least $950,000 in improvements must be invested in the land within 31 months of its acquisition. The improvements may be financed.
The improved property must then be used in an active conduct of business, for example, renting of the property. Kukui’ula currently offers a variety of vacant homesites with 7-day and 30-day rental home privileges, depending on the neighborhood.
31-Month Working Capital Safe Harbor UPDATE
According to a recent article published by the Economic Innovation Group, the first round of Opportunity Zone regulations provided a 31-month working capital safe harbor for “QOF investments in qualified opportunity zone businesses that acquire, construct, or rehabilitate tangible business property, which includes both real property and other tangible property.” In order to better facilitate investments in operating businesses, investors and entrepreneurs needed additional clarity that the safe harbor would extend to assets necessary for the operation of a qualified business.
- The new proposed regulations provide that the working capital safe harbor now includes the development of a trade or business in the QOZ as well as acquisition, construction, and/or substantial improvement of tangible property, thus extending it to operating businesses.
- Exceeding the 31-month period does not violate the safe harbor if the delay is attributable to waiting for government action, such as permitting, if the application for that action is completed during the 31-month period.
- A single QOZ Business may benefit from multiple overlapping or sequential applications of the working capital safe harbor to different infusions of capital. The examples appear to suggest that a “cliff effect” still exists if no trade or business exists at the end of the first 31-month period.
Kukui’ula Plantation House
Superb farm to table cuisine is featured at the club’s Plantation House, along with its vibrant wine and spirits selection. The ha of Kukui’ula is the Plantation House where families gather, dine, swim, savor sunsets and starry nights. The 20,000 sqft private clubhouse, overlooking Kukui’ula Bay, was designed by Don Ziebell, founder of OZ Architects Inc of Scottsdale, and was given a fresh look by San Francisco-based interior designer, Gino Castano in 2017.
Kukui’ula’s pools and private beach are located just south of the Plantation House. Makai Pools begin with an infinity-edged pool with views of Spouting Horn and Kukui’ula Harbor. The saline water falls from the infinity edge into a series of individual pools and are attended by the Island Pursuits team. The Makai Pools area also features games such as bocce, beach volleyball, and horseshoes.
Kukui’ula Club’s Hi’ilani Spa
Kukui’ula is located on the sunny south shore of Kauai and has a mild semi-tropical climate year-round. Its spa is primarily outdoors, with a variety of specialized water treatments, including a rejuvenating waterfall, a treatment table immersed in water, and hot/cold immersion therapy.
Kukui’ula Spa and Fitness Center features extensive fitness machinery as well as an array of yoga classes and pilates classes in the Movement Studio, strengthening classes on the Fitness Lanai, and Aqua Boot Camp in the Spa Lap Pool. Members may enjoy a continental breakfast before or after a workout, steam, or swim.
Kukui’ula’s best-kept secret may well be its 10-acre organic farm and lake. Fruits, vegetables, herbs, and flowers are harvested and offered to members at the Plantation House daily. The Farm‘s lake offers members a perimeter path for serene scenic hikes.
Please contact your tax specialist to determine how these new tax incentives may possibly work for you.
Looking for Opportunity Zone property on Kauai?
Contact me — Lori Decker, Kauai Opportunity Zone specialist.