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Hawaii 1031 Exchange: Rules, HARPTA and Where You Can Still Rent

A 1031 exchange lets you sell investment property and put the proceeds into another one without paying capital gains tax now. The federal rules are the same everywhere. What’s different in Hawaii is the state withholding at closing (HARPTA), and the fact that a lot of island property you might want to buy can’t legally be rented short-term anymore.

This page is the starting point. If you want the long version, read our full guide: 1031 Exchanges in Hawaii for 2026: Rules, the HARPTA Wrinkle and Best Practices.

Last updated November 10, 2026

The basics

  • Investment or business property only. Both the property you sell and the one you buy have to be held for investment or business use. Your primary home doesn’t count.
  • Real estate for real estate. Any U.S. real property can be exchanged for any other. A Seattle rental can become a Kihei condo, or Big Island land.
  • 45 days to identify. From the day you close the sale, you have 45 calendar days to name your replacement property in writing.
  • 180 days to close. You have to close on the replacement within 180 days of the sale (or by your tax return due date, if that comes first). No extensions for weekends or holidays.
  • You can’t touch the money. Sale proceeds go to a qualified intermediary, not to you. If the cash hits your account, the exchange is over.
  • Buy equal or up. To defer all of the tax, buy at the same or higher price and reinvest all of your equity. Anything you take out is “boot,” and it’s taxable.

What’s different in Hawaii

HARPTA withholding

When a non-resident sells Hawaii property, escrow normally holds back 7.25% of the sale price for the state. On a $1.2M condo that’s $87,000. If the sale is part of a qualifying 1031 exchange, Form N-289 can get you out of that withholding. It has to be in place before closing, so tell escrow early. Foreign sellers also face federal withholding (FIRPTA); see our Canadian Buyers Guide if that’s you.

State reporting

Hawaii follows the federal deferral rules. You report the exchange federally on Form 8824 and to the state on Form N-103.

Coming from California

California keeps track of gain you defer when you exchange out of the state, and expects you to file a yearly form (FTB 3840) until you sell the Hawaii property. Ask your CPA before you start.

The vacation rental problem

This is where most Hawaii exchanges go wrong. A lot of buyers want a condo they can rent nightly. In much of the state that’s either ending or already gone. If the property can’t be rented the way you planned, it can be hard to show it’s held for investment. Check the rules before you put it on your 45-day list.

Where you can still rent: island by island

  • Maui. Hotel and resort-zoned condos are fine. Most apartment-zoned condos in Kihei and West Maui lose nightly rentals under Bill 9 (West Maui by January 1, 2029, the rest by January 1, 2031). Check any building with our Bill 9 building-by-building tracker before you name it.
  • Oahu. Nightly rentals are limited to resort zones, mostly Waikiki, Ko Olina and Turtle Bay. Elsewhere there’s a 90-day minimum stay. Long-term rentals and multi-family still work well for exchanges. See Oahu’s rental rules and Oahu multi-family opportunities.
  • Kauai. Vacation rentals are mostly limited to Visitor Destination Areas. Outside them, almost every legal rental runs on a pre-2008 permit, and missing a renewal can mean losing it for good. See where TVRs are still legal on Kauai.
  • Big Island. The most permissive county. Rentals are generally allowed in resort, hotel and some multifamily districts, with annual registration required starting July 1, 2026. Waikoloa and the Kohala Coast are where a lot of exchange buyers end up.

For the full county rundown: Hawaii short-term rental update: where all four counties stand.

Buying a vacation home you’ll also use

If the replacement is a place you’ll stay in some of the time, there’s an IRS safe harbor. For each of the first two years after the exchange, rent it at a fair price for at least 14 days, and keep your own use to 14 days or 10% of the rented days, whichever is more. Stay inside that and it counts as investment property.

Finding a qualified intermediary

The intermediary (also called an accommodator or exchange company) holds your money between the sale and the purchase. They aren’t regulated much, so choose carefully. They need to be in place before you close the sale. You can’t add one afterward.

Questions to ask:

  • Are exchange funds kept in a separate, segregated account, or pooled with other clients’ money?
  • Do you carry a fidelity bond and errors-and-omissions insurance? For how much?
  • Have you done exchanges into or out of Hawaii? Do you know the N-289 process?
  • What’s the fee, and does it change for a reverse or improvement exchange?
  • Who do I call on day 44 if something goes sideways?

Several of the big title companies in Hawaii have their own exchange companies. Your title officer is a good first call. See Title companies in Hawaii.

How we help with exchanges

The real estate side of an exchange runs on a calendar. We help you build a 45-day list before you sell, check rental rules and HOA rules on every property before it goes on that list, and coordinate with your QI and escrow so N-289 is handled before closing. We aren’t tax advisors. Your CPA and your QI sign off on the tax side.

Doing an exchange? Tell us where you are.

Call or text 808-866-6593 with your sale closing date, and we’ll work back from your 45-day deadline. Or start here.

Related reading

This page is general information, not legal or tax advice. 1031 exchanges have strict rules. Work with a CPA and a qualified intermediary before you sell.