By Benjamin Finnerty (S), REALTOR® (RS-83812) with Keller Williams Realty Maui · Kīhei, Maui · 808-481-9748

Quick Answer: If Bill 9’s vacation rental phase-out has you thinking about selling your Maui condo, a 1031 exchange may let you defer federal capital gains tax by reinvesting in other U.S. investment real estate. IRS rules require identifying replacement property within 45 days and closing within 180 days. Hawaiʻi’s HARPTA withholding also has an exemption for qualifying exchanges.

I’m Benjamin Finnerty, a REALTOR® in Kīhei with Keller Williams Realty Maui, and I focus on South Maui condos and short-term-rental zoning. Bill 9 has many Maui condo owners deciding whether to convert to long-term rentals, wait on hotel rezoning, or sell. If you’re in that last group, a 1031 exchange for your Maui condo is one of the most important tools to understand before you sign a listing agreement.

What Is the Bill 9 Timeline for Maui Condo Owners?

Bill 9 phases out transient vacation rentals in apartment-zoned buildings starting January 1, 2029, in West Maui and January 1, 2031, in the rest of Maui County, according to Maui Now and Civil Beat. Mayor Richard Bissen signed it on December 15, 2025, after the Maui County Council passed it 5-3. It covers the units commonly called the Minatoya List.

Separately, the County is considering hotel rezoning that could allow some complexes to keep short-term rentals. That process is still moving through the Council and planning commissions, so the outcome for any one building isn’t settled. That uncertainty is exactly why it pays to know your exit options early.

How Does a 1031 Exchange Work for a Maui Condo?

A 1031 exchange lets you defer tax on the gain when you exchange real property held for business or investment for other “like-kind” real property. It comes from Section 1031 of the Internal Revenue Code, and since 2018, exchanges are limited to real property only.

The key rules from the IRS instructions for Form 8824:

• Investment or business property only. Property held primarily for personal use, or held primarily for sale, doesn’t qualify.
• 45-day identification. You must identify replacement property within 45 days after you transfer your Maui condo.
• 180-day completion. You must receive the replacement property by the earlier of 180 days after the sale or the due date (including extensions) of your tax return for that year.
• U.S. for U.S. Real property in the United States and real property outside the U.S. are not like-kind. A Maui condo can be exchanged for a duplex in Arizona or a rental home in Wailuku, but not for a villa in Mexico.
• Report it. The exchange is reported on IRS Form 8824.

Most sellers use a qualified intermediary to hold the sale proceeds, because taking the cash yourself, even briefly, can break the exchange. Any cash or debt relief you don’t reinvest (often called “boot”) may be taxable.

Can I Do a 1031 Exchange If I Also Used My Condo for Personal Stays?

Often yes, if you fit the IRS safe harbor in Revenue Procedure 2008-16. Many Maui condo owners rent their unit most of the year and use it themselves for a few weeks. Under that safe harbor, a vacation-type unit is treated as investment property for exchange purposes if you:

• Owned it for at least 24 months immediately before the exchange,
• Rented it at fair market rent for at least 14 days in each of those two 12-month periods, and
• Limited your personal use to the greater of 14 days or 10% of the days it was rented, in each period.

Similar rules apply to the replacement property for the 24 months after the exchange. Falling outside the safe harbor doesn’t automatically disqualify you, but it does make planning with a tax professional even more important.

How Much Tax Could a 1031 Exchange Defer?

That depends on your gain and your income. For context, the IRS taxes long-term capital gains at 0%, 15% or 20% depending on taxable income, and the portion of gain that comes from depreciation you’ve claimed (unrecaptured Section 1250 gain) can be taxed at up to 25%. Higher-income sellers may also owe the 3.8% net investment income tax. Hawaiʻi has its own income tax on capital gains as well. Owners who have depreciated a rental for years often find the deferral is substantial.

How Does HARPTA Affect a 1031 Exchange?

A qualifying 1031 exchange can be exempt from HARPTA withholding. If you don’t live in Hawaiʻi, the buyer generally must withhold 7.25% of the sales price under HARPTA when you sell, but a seller can use Hawaiʻi Form N-289 to certify that withholding isn’t required when the sale qualifies for a nonrecognition provision such as a 1031 exchange. Your escrow company and CPA will want this handled well before closing.

What Are the Alternatives to a 1031 Exchange?

A 1031 exchange isn’t right for everyone. Other paths Maui condo owners are weighing include:

• Converting to a long-term rental. This keeps the property and may qualify for Maui’s long-term rental property tax classification.
• Waiting on rezoning. If your complex is under consideration for hotel zoning, some owners are holding until there’s a decision.
• Selling outright. Some owners simply prefer to take the cash, pay the tax and simplify.

My Take: What I’m Telling Maui Condo Owners

The 45-day identification window goes by quickly, so if a 1031 exchange is on the table, I suggest starting your replacement-property search before you list. Knowing what you’d buy next, whether that’s another Maui property or something on the mainland, takes pressure off the clock once your condo closes.

Second, look honestly at your personal use. If you’ve stayed in your unit more than the greater of 14 days or 10% of rented days in a given year, talk with your CPA about how that affects the safe harbor before you set a timeline.

Third, find out where your building stands. Whether your complex is part of the hotel rezoning discussion can change whether selling now, holding or converting to a long-term rental makes the most sense for you. Then line up your qualified intermediary, CPA and escrow early so HARPTA paperwork like Form N-289 is ready before closing.

This is general information, not tax or legal advice. Please confirm your situation with a CPA or Hawaiʻi attorney.

Frequently Asked Questions

Can I do a 1031 exchange from a Maui condo into a mainland rental?

Yes. Real property anywhere in the United States can be like-kind, as long as both properties are held for investment or business use.

Can I exchange into a home I plan to live in?

Not right away. Replacement property must be held for investment or business use. Converting it to a residence later has its own rules, so get tax advice first.

What happens if I miss the 45-day deadline?

The exchange generally fails and the sale is treated as a taxable sale. The IRS deadlines are strict.

Do I still owe HARPTA withholding in a 1031 exchange?

Not necessarily. Form N-289 can exempt a qualifying exchange from withholding. Your CPA and escrow officer can confirm whether you qualify.

When should I start planning?

Before you list. Line up your qualified intermediary, CPA and replacement-property search early.

For more background, read my overview of how Bill 9 is reshaping Maui’s condo market, my update on the Maui hotel rezoning process for shoreline condo complexes, and what it means that the Planning Commission said no to most Bill 9 exemptions.

Ask Benjamin

I can help you understand your building’s situation, what your unit could sell for in today’s market and what replacement properties look like on Maui, and I’ll connect you with tax professionals for the tax side. I’m Benjamin Finnerty, and you’re welcome to call or text me at 808-481-9748 or email benjaminfinnerty@gmail.com whenever you’re ready to talk it through.

Sources: IRS Instructions for Form 8824; IRS Topic No. 409; IRS Revenue Procedure 2008-16 (via The Tax Adviser, AICPA); Hawaiʻi Department of Taxation (HARPTA, Form N-289); County of Maui; Maui Now; Honolulu Civil Beat.