Kukui’ula Kauai is located in one of 8,700 IRS-designated opportunity zones (OZ) in the country, providing tax incentives for investors. The current deadline for making OZ investments via a Qualifed Opportunity Fund (QOF) is December 31, 2026. The reason to do so in Kukui’ula is clear to me: If the QOF investment is held for at least 10 years, the potentially significant capital gains are tax free.
According to CPA Daniel Goodwin, opportunity zones, created by the Tax Cuts and Jobs Act, were designed to encourage economic development and job creation in specific communities and census tracts. As Goodwin explains in his article Why Opportunity Zones Are a Good Investment in 2024, investors can defer paying taxes on capital gains by investing those gains into a Qualified Opportunity Fund (QOF) within 180 days of the sale of an asset. The payment of the capital gains tax is deferred until the eventual sale of the QOF investment itself or the program’s expiration in 2026, whichever comes first.
As Goodwin points out, while the three-year tax deferral is not to be underestimated, the gem of the tax benefit is found in the QOF investment itself. If the QOF investment is held for at least ten years, any capital gains earned in those years are tax free.
The Kukui’ula Resort Community
The resort community of Kukui’ula with its private 18-hole golf course, club house and spa, is located in one of the two Kauai OZ-designated census tracts, and it’s my view there is a correlation between the strong growth of jobs for Kauai residents and the 2017 legislation which created opportunity zones. Take a drive through the neighborhoods of the beautifully landscaped community and view the significant construction activity. The resort community is flourishing.
15,433 sq ft Aepo Nei Homesite 13 is outlined in white. List price: $1,500,000. MLS 669283
Ideal QOF Investment
Kukui’ula is located in a Kauai Visitor Destination Area (VDA) and the developer’s CC&Rs permit seven-day vacation renting in its ready-to-build 35-lot Aepo Nei Neighborhood.
Aepo Nei Homesite 13 may be the ideal QOF investment currently offered in the South Kauai Opportunity Zone. Currently listed at $1,500,000, this level 15,437 sq ft ready-to-build homesite features panoramic ocean views, and is situated to take advantage of Kauai’s cool tradewinds, with no early morning golf course grooming concerns.
The homesite’s shape would provide many floorplan options for a handsome indoor-outdoor home with an expansive covered oceanview lanai and a swimming pool protected from the prevailing tradewinds, creating the perfect vacation rental home.
Opportunity Zone Rules
The OZ rules require:
1) improvement of the initial OZ investment with an investment of at least 100% of the cost of the investment within 30 months, and
2) create business income from that improved investment, and
3) hold the investment for at least 10 years in order to pay zero tax on the capital gain of the OZ investment.
Applying these OZ rules to a Kukui’ula vacant homesite:
1)Purchase a Kukui’ula vacant homesite, for example, Aepo Nei Homesite 13, for $1,500,000 and hire a local general contractor who hires local subtrades to build a vacation rental home, at a cost of at least $1,500,000, within 30 months. The cost basis in the OZ investment in this example is at least $3,000,000.
2) Hire a local property manager to vacation rent the OZ investment home to create the required business income, and hire local workers to maintain the home, the yard, and the swimming pool.
3) After at least 10 years, sell the OZ investment home. The capital gains on the sale of the home would be tax free to the OZ investor.
2024 Sales of Kukui’ula Oceanview Homes – From $5,500,000 to $8,500,000
In the first five months of 2024, oceanview homes in Kukui’ula sold for prices from $5,500,000 to $8,500,000. Every buyer is required to pay the one-time club initiation fee which is currently $75,000. Its golf course, club house, restaurants, spa, and other amentities are for the exclusive use of club members and their guests.
South Kauai Vacation Rental Market is a Year Round Market
South Shore Kauai with its temperate climate, beautiful white sand beaches, clean blue ocean water, and lush green hiking trails, has been attracting vacationers year round, for decades.
There is a well-established demand for oceanview, air-conditioned vacation homes here on the south shore, and there are experienced local property management companies such as Hawaii Life Vacations to care for OZ investment homes and to produce the business income required.
The Plantation Club House – Kukui’ula
The Hi’ilani Spa – Kukui’ula
#14 – Kukui’ula Golf Course
Please contact your tax specialist to determine how these tax incentives may possibly work for you.
Looking for Opportunity Zone property on Kauai?
Contact me, Lori Decker, Kauai Opportunity Zone specialist.
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