By Tony Kawaguchi, REALTOR (RS-66616), The Kawaguchi Group, eXp Realty (RB-21841). Updated November 13, 2026.
Oahu has a lot of investment property, from small Waikiki condos to multi-million-dollar beachfront homes. When owners sell, capital gains tax can take a big bite. A 1031 exchange, named for Section 1031 of the Internal Revenue Code, lets you defer that tax by rolling the proceeds into like-kind replacement property. Done right, it's one of the most powerful tools an investor has. Done wrong, a small mistake can cost you thousands. This guide covers the federal rules, the Hawaii-specific pieces like HARPTA, and how I help clients plan an exchange.
This is general education, not tax or legal advice. Always work with a qualified intermediary and your own CPA or tax attorney.
You sell an investment or business property (the "relinquished property") and buy one or more replacement properties of like kind. If you follow the rules, you defer federal capital gains tax, and generally Hawaii income tax, on the sale. The deferred gain carries into the new property. That means its tax basis is lower than its purchase price, so you'll have less depreciation, and the gain can be taxed later if you sell without another exchange.
For example, you might sell a rental condo in Ala Moana and buy a rental house on the mainland, or sell vacant land in Kaneohe and buy a condo in Waikiki. Since 2018, federal law has limited 1031 exchanges to real property.
When a non-resident sells Hawaii real property, the Hawaii Real Property Tax Act (HARPTA) generally requires the buyer to withhold 7.25% of the amount realized for state income tax. If the sale is part of a qualifying like-kind exchange, the seller may be able to claim an exemption or apply for a waiver or reduction using the Hawaii Department of Taxation's forms. That's why your exchange should be set up and documented before escrow closes. Federal FIRPTA withholding can apply to foreign sellers as well.
Hawaii generally follows the federal 1031 rules for state income tax. If you exchange Hawaii property for property in another state, talk with your CPA about how Hawaii tracks and taxes that deferred gain when the replacement property is eventually sold.
Some leasehold interests can count as real property for a 1031 exchange, depending on the remaining lease term. Check with your QI and tax advisor before you identify a leasehold property. For condo replacement properties, review the association documents, reserves and rental rules early, because the 45-day window is short.
The Honolulu Board of REALTORS reported an Oahu single-family median of $1,150,000 for October 2026, with homes selling in a median of 15 days. The condo median was $499,000, with a median of 49 days on market and 2,506 active condo listings, up 7.0% from a year earlier. For an exchanger, single-family replacement properties can go fast, so line up options before your sale closes. Condo buyers have more choices within the 45-day window. Keep in mind that Honolulu currently enforces a 30-day minimum rental period in most residential areas, which affects rental income projections.
Source: Honolulu Board of REALTORS, October 2026 Oahu resale report, released November 6, 2026 (hicentral.com). Federal rules: Internal Revenue Code Section 1031 and IRS guidance on like-kind exchanges. HARPTA: Hawaii Department of Taxation.
A 1031 exchange lets you sell investment or business real property and buy like-kind replacement property while deferring capital gains tax, as long as you follow IRS rules and use a qualified intermediary.
You have 45 calendar days from the sale to identify replacement properties in writing, and 180 days, or your tax return due date if that's earlier, to close on them. The deadlines aren't extended for weekends or holidays.
No. A primary residence doesn't qualify for a 1031 exchange. The separate Section 121 home-sale exclusion may apply instead.
HARPTA generally requires withholding of 7.25% of the amount realized when a non-resident sells Hawaii real property. A seller doing a qualifying like-kind exchange may be able to claim an exemption or request a waiver or reduction through the Hawaii Department of Taxation, so set this up before closing.
Yes. Like-kind real property can be in another state. Talk with your CPA about how Hawaii tracks and taxes the deferred gain when the out-of-state property is later sold.
Boot is any cash or debt relief you receive and don't reinvest or replace. It's taxable. To defer all of the tax, buy property of equal or greater value and reinvest all of the net proceeds.
Yes. A qualified intermediary holds the sale proceeds so you never receive them, prepares the exchange documents and helps you track the deadlines. The arrangement must be in place before your sale closes.
Planning a 1031 exchange on Oahu? Call me at (808) 201-3577 and we'll map out your timeline.
Tony Kawaguchi, REALTOR (RS-66616), The Kawaguchi Group, eXp Realty (RB-21841).