Hawaii capital gains tax on real estate is capped at 7.25%, well below the state's 11% top rate on ordinary income, and nonresident sellers meet a matching 7.25% HARPTA withholding on the gross price at closing. A 1031 exchange in Hawaii defers the state and federal tax and, with Form N-289 in the buyer's hands, stops the HARPTA withholding, but the seller-paid conveyance tax is still owed on every transfer.
Reviewed by Jon Hilley, CEO & Founder of 1031 Specialists. Last reviewed September 29, 2026.
| State tax on real estate gains | Ordinary rates up to 11%, with an alternative 7.25% maximum rate on net capital gain |
|---|---|
| Long-term capital gains treatment | Capped at 7.25% under HRS 235-51 |
| Nonresident withholding at closing | HARPTA: 7.25% of the amount realized, withheld by the buyer |
| Withholding form | Forms N-288 and N-288A (buyer remits); Form N-289 certifies an exemption, including a 1031 exchange |
| Transfer or conveyance tax (a 1031 does not defer it) | Conveyance tax of $0.10 to $1.00 per $100, or $0.15 to $1.25 per $100 on homes and condos bought by non-homeowners; paid by the seller on Form P-64A |
| Clawback on out-of-state replacement property | None |
| Conforms to Section 1031 | Yes; Hawaii conforms to the Internal Revenue Code as of December 31, 2024 |
| Property tax note | Set by each county, with higher rates for non-owner-occupied and resort classes |
Table of contents
- How much is capital gains tax on real estate in Hawaii?
- Hawaii tax on a $300,000 gain: worked example
- HARPTA withholding and the Form N-289 exemption
- Hawaii conveyance tax: the cost a 1031 cannot defer
- Hawaii conformity and clawback
- HARPTA timing: getting N-289 in place before escrow closes
- Moving into or out of Hawaii
- Where Hawaii exchanges happen
- Federal 1031 rules for Hawaii exchanges
- Hawaii 1031 mistakes to avoid
- Start your Hawaii 1031 exchange
- Frequently asked questions
- Sources
How much is capital gains tax on real estate in Hawaii?
Hawaii is one of a handful of states with a true capital gains rate. Ordinary income is taxed on a graduated schedule that tops out at 11%, but HRS 235-51 provides an alternative tax that limits the rate on net capital gain to 7.25%. For an investor with a large gain, the 7.25% cap is what matters.
The cap applies to net capital gain as the federal code defines it, which includes the depreciation portion of a real estate gain (unrecaptured §1250 gain), so that slice is also taxed at no more than 7.25% in Hawaii. Short-term gains on property held a year or less get no cap and fall into the ordinary brackets. There are no county income taxes.
Hawaii has been widening its brackets under a multi-year schedule enacted in 2024 (Act 45), with the last step for tax years beginning after 2028, raising the income at which each rate begins. The 11% top rate and the 7.25% capital gains cap are unchanged by that schedule.
Federal tax sits on top: 0%, 15% or 20% on long-term gain (20% above $545,500 single or $613,700 joint taxable income in 2026), up to 25% on unrecaptured §1250 gain, and the 3.8% net investment income tax above $200,000 single or $250,000 joint MAGI.
Hawaii tax on a $300,000 gain: worked example
Assumptions: a $300,000 long-term gain on a Hawaii investment property, $100,000 of it from depreciation, a married couple filing jointly in the top federal and Hawaii brackets.
| Line | Math | Tax |
|---|---|---|
| Federal: unrecaptured §1250 gain | 25% × $100,000 | $25,000 |
| Federal: remaining long-term gain | 20% × $200,000 | $40,000 |
| Federal: net investment income tax | 3.8% × $300,000 | $11,400 |
| Federal subtotal | $76,400 | |
| Hawaii: alternative capital gains rate | 7.25% × $300,000 | $21,750 |
| Total deferred by a full 1031 | $76,400 + $21,750 | $98,150 |
Without the cap, the same gain at 11% would cost $33,000 in Hawaii tax. Check your depreciation line with the depreciation recapture calculator, and compare selling with exchanging using the capital gains vs. 1031 exchange comparison.
HARPTA withholding and the Form N-289 exemption
The Hawaii Real Property Tax Act (HARPTA) requires the buyer to withhold 7.25% of the amount realized when a nonresident sells Hawaii real property. Amount realized is the full price, including any liabilities the buyer takes over, not your net equity. On a $1,500,000 condo, that is $108,750 held back at closing. The buyer sends it with Forms N-288 and N-288A by the 20th day after the transfer. It is a prepayment of your Hawaii income tax, not an extra tax, but it can wreck an exchange if it drains the funds your intermediary needs.
A seller avoids the withholding by giving the buyer Form N-289, Certification for Exemption. Box 2 covers a transfer where no gain is recognized under a nonrecognition provision of the Internal Revenue Code as Hawaii applies it, which includes a §1031 exchange. Practical points:
- N-289 goes to the buyer, usually through escrow. The seller does not file it with the Department of Taxation for approval.
- If you take boot, the recognized gain is subject to withholding even with an N-289, so plan for it or reinvest everything.
- Hawaii residents certify on N-289 based on residency instead. A principal residence sold for $300,000 or less is also exempt.
- If the sale produces little or no gain but is not an exchange, apply for a withholding certificate on Form N-288B before closing, or request a tentative refund on Form N-288C afterward.
Foreign sellers can face federal FIRPTA withholding in addition to HARPTA. Our guide for foreigners selling US property covers the federal side.
Hawaii conveyance tax: the cost a 1031 cannot defer
Hawaii's conveyance tax is charged on the full consideration, including loans assumed, and is generally paid by the seller on Form P-64A within 90 days of the transaction. The Department of Taxation's instructions state that when parties exchange real property interests, both conveyances are subject to the tax. There is no exemption for a 1031 exchange.
Two schedules apply. Column 2 covers a condominium or single-family home bought by a purchaser who is not eligible for the county homeowner exemption, which describes most investor purchases of homes and condos. Column 1 covers everything else, including commercial and multifamily property.
| Value | Column 1 (general) | Column 2 (home or condo, no homeowner exemption) |
|---|---|---|
| Under $600,000 | $0.10 | $0.15 |
| $600,000 to $999,999 | $0.20 | $0.25 |
| $1,000,000 to $1,999,999 | $0.30 | $0.40 |
| $2,000,000 to $3,999,999 | $0.50 | $0.60 |
| $4,000,000 to $5,999,999 | $0.70 | $0.85 |
| $6,000,000 to $9,999,999 | $0.90 | $1.10 |
| $10,000,000 and up | $1.00 | $1.25 |
The rate applies to the whole price, not just the amount above each threshold. A mainland investor selling a $2,500,000 Maui condo to another investor pays 0.60%, or $15,000. Budget it on both your sale and, if the seller on your replacement pushes costs to you, your purchase.
Hawaii conformity and clawback
Hawaii conforms to the Internal Revenue Code as of December 31, 2024 (Act 123, SLH 2025), including §1031, so a gain deferred on your federal return is deferred on your Hawaii return. You report the exchange with federal Form 8824 attached to your Hawaii filing (Form N-11 for residents, N-15 for nonresidents).
Hawaii has no clawback and no annual tracking form like California's FTB 3840. If you exchange Hawaii property into mainland property, Hawaii does not require yearly reports on the deferred gain. Keep your exchange records, though, because the gain came from Hawaii real property and your advisor should confirm how a later sale is sourced.
HARPTA timing: getting N-289 in place before escrow closes
Most Hawaii exchange problems are timing problems. Island escrows are used to withholding for mainland sellers, and if the N-289 is not in the file, the escrow officer will withhold 7.25% because the buyer is liable if they do not. A workable sequence:
- Engage your qualified intermediary as soon as the purchase contract is signed, so the exchange agreement and assignment are ready.
- Complete Form N-289 and deliver it to escrow with the exchange documents, well before the scheduled closing.
- If you expect to keep some cash, tell escrow early so the boot portion is withheld correctly and the rest goes to the intermediary.
- If withholding happens anyway, file N-288C for a tentative refund or recover it on your Hawaii return, and cover the shortfall so the replacement purchase still closes on time.
With long shipping and inspection timelines on the islands, a reverse 1031 exchange can help when the replacement property is ready before your sale.
Moving into or out of Hawaii
Mainland owners of Hawaii property are nonresidents for HARPTA and owe Hawaii tax on Hawaii-source gain when they sell for cash, reported on Form N-15. An exchange into mainland property defers that tax, and N-289 stops the withholding.
Hawaii residents moving to the mainland often exchange island rentals into lower-cost markets in Nevada, Arizona or Texas. If you sell Hawaii property after moving, HARPTA applies to you as a nonresident unless you give an N-289.
Mainland investors moving to Hawaii should look at the timing of sales of property they keep elsewhere. Once you are a Hawaii resident, Hawaii taxes your worldwide income, subject to credits for tax paid to the state where the property sits. Former Californians should know California's FTB 3840 still applies to California-source gain exchanged into Hawaii; see our California page.
Where Hawaii exchanges happen
Oahu accounts for most exchange volume, with Honolulu condos, small apartment buildings and industrial space near the airport and Kapolei. Maui, Kauai and the Big Island see resort condos, vacation homes and agricultural land. Supply is tight on every island, so investors often identify three properties and expect to lose one.
Two local factors shape replacement choices. Each county sets its own property tax classes, and investment, non-owner-occupied and resort classes carry higher rates than the homeowner rate, so budget at the class the property will actually fall into. County short-term rental rules also differ by island and have tightened in recent years, so confirm legal use before underwriting nightly rents. Hawaii's general excise tax, at a 4% state rate plus any county surcharge, applies to rental income.
Federal 1031 rules for Hawaii exchanges
Identify replacement property in writing within 45 days and close within 180 days; with island escrows, start early. A qualified intermediary must hold the proceeds, since receiving the money ends the exchange. Buy equal or greater value and replace your debt or add cash to defer all of it. Our 45-day identification validator, 1031 exchange calculator and 1031 exchange guides cover the details.
Hawaii 1031 mistakes to avoid
- Closing without Form N-289 in the escrow file, so 7.25% of the gross price is withheld under HARPTA.
- Assuming N-289 covers cash taken out; recognized gain from boot is still subject to withholding.
- Leaving conveyance tax out of the numbers, or using the Column 1 rate for an investor purchase of a condo that falls under Column 2.
- Budgeting property tax at the homeowner rate when the replacement will be taxed in a non-owner-occupied or resort class.
- Underwriting vacation-rental income without confirming the county allows short-term rental at that address.
- Foreign sellers planning for HARPTA but not for federal FIRPTA withholding on top.
Start your Hawaii 1031 exchange
Open the exchange as soon as your sale is under contract so we can prepare the exchange agreement, coordinate with your escrow officer on the N-289 and hold your proceeds. Start your exchange or schedule an intro call.
Frequently asked questions
How can I avoid capital gains tax on real estate in Hawaii?
A 1031 exchange defers both the federal tax and Hawaii tax of up to 7.25% on capital gains when you reinvest all proceeds in like-kind real property through a qualified intermediary. Nonresidents should also give the buyer Form N-289 so HARPTA withholding is not taken at closing.
What is the Hawaii capital gains tax rate?
Hawaii taxes net capital gain at a maximum of 7.25% under an alternative tax, even though ordinary income is taxed at up to 11%. Short-term gains are taxed at ordinary rates.
What is HARPTA and how much is withheld?
HARPTA is Hawaii's withholding on real property sales by nonresidents. The buyer withholds 7.25% of the amount realized and remits it on Forms N-288 and N-288A within 20 days of the transfer.
How do I avoid HARPTA withholding in a 1031 exchange?
Give the buyer a completed Form N-289 certifying that no gain is recognized because the sale is part of a like-kind exchange. It is not filed with the Department of Taxation for approval. Any boot you receive is still subject to withholding.
Does a 1031 exchange defer Hawaii conveyance tax?
No. Conveyance tax applies to both sides of an exchange. Rates run from $0.10 to $1.00 per $100, or $0.15 to $1.25 per $100 for homes and condos bought by purchasers without a homeowner exemption, and the seller generally pays.
Does Hawaii have a clawback on out-of-state replacement property?
No. Hawaii has no annual reporting requirement like California's FTB 3840 when you exchange Hawaii property into mainland property.
Sources
- HRS 235-51: Tax imposed on individuals; rates (7.25% capital gains alternative tax)
- Hawaii Department of Taxation: 2025 Form N-11 instructions (IRC conformity)
- Hawaii Department of Taxation: Tax Facts 2010-1, Understanding HARPTA (Rev. April 2025)
- Hawaii Department of Taxation: HARPTA forms
- Hawaii Department of Taxation: Form N-289
- Hawaii Department of Taxation: Form P-64A instructions (conveyance tax rates)
- Hawaii Department of Taxation: Conveyance tax forms
- Hawaii Department of Taxation: General excise tax
- IRS Topic 409: Capital gains and losses
Related: California, Nevada, Washington, Alaska and all 50 states.
This page is general information about Hawaii exchanges, not tax or legal advice. 1031 Specialists is a qualified intermediary; confirm HARPTA, conveyance tax and income tax details with your advisor.
