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

Quick Answer: As of October 2026, capital gains tax on a Maui home sale starts with the federal Section 121 exclusion: up to $250,000 of gain tax-free for single filers or $500,000 for joint filers, if you owned and lived in the home at least two of the last five years. Gain above that is taxed federally at 0%, 15% or 20%, and Hawaiʻi caps its capital gains rate at 7.25%.

I’m Benjamin Finnerty, a REALTOR® in Kīhei with Keller Williams Realty Maui, and here’s what capital gains tax on a Maui home sale looks like in 2026. Even with the single-family median at $1,150,000 in September 2026 (down 11% from a year earlier, per REALTORS® Association of Maui data reported by Maui Now), long-time owners can have gains well above the exclusion.

General information, not tax or legal advice. Confirm your situation with a CPA or Hawaiʻi attorney.

How much home-sale gain can I exclude from capital gains tax?

You can exclude up to $250,000 of gain ($500,000 if married filing jointly) on the sale of your main home, according to IRS Publication 523 and IRS Topic 701. To qualify, you generally must have owned the home for at least 24 months and lived in it as your main home for at least 24 months during the five years before the sale. The two periods don’t have to be continuous.

A few details matter here:

• For the $500,000 joint exclusion, either spouse can meet the ownership test, but both must meet the use test.
• If you acquired the home through a 1031 exchange, the exclusion isn’t available until you’ve owned it at least five years.
• If you sell early because of a job move (new job at least 50 miles farther away), health, or an unforeseeable event, a partial exclusion may apply. For example, 18 months of qualifying time works out to 18/24 × $250,000 = $187,500.

Hawaiʻi follows the same federal exclusion amounts and tests in its Form N-103 instructions.

What are the 2026 federal capital gains tax rates?

Long-term gain above the exclusion is taxed at 0%, 15% or 20%, depending on your taxable income. These are the 2026 thresholds from IRS Revenue Procedure 2025-32:

Filing status	0% up to	15% up to	20% above
Married filing jointly	$98,900	$613,700	$613,700
Head of household	$66,200	$579,600	$579,600
Single	$49,450	$545,500	$545,500
Married filing separately	$49,450	$306,850	$306,850

On top of that, the 3.8% net investment income tax can apply to taxable gain when modified adjusted gross income is above $250,000 (joint), $200,000 (single or head of household) or $125,000 (married filing separately). Those thresholds aren’t indexed for inflation, according to the IRS. Gain you exclude under Section 121 isn’t subject to it.

What is Hawaiʻi’s capital gains tax rate in 2026?

Hawaiʻi caps the tax on an individual’s net capital gain at 7.25% under HRS §235-51(f). Several 2026 bills would have raised that rate or taxed gains as ordinary income, but none of them became law this session.

The bigger 2026 change was Act 24 (SB3125), signed May 21, 2026. It adds a 13% top bracket on ordinary income above $1,000,000 (joint) or $500,000 (single), starting in tax year 2027. Based on the bill text, it doesn’t change the 7.25% capital gains cap. So for a 2026 sale, long-term gain on a Maui home is still taxed by the state at no more than 7.25%.

What if I rented the home out before or after living in it?

Rental use can reduce your exclusion, and depreciation is always taxable. Under IRC §121(b)(5), gain tied to periods after 2008 when the home wasn’t your main residence (“nonqualified use”) can’t be excluded. The order matters: time after you move out (within the five-year window) generally doesn’t count against you. So “live there first, then rent” usually works better than “rent first, then move in.”

Any depreciation you took after May 6, 1997 can’t be excluded either. Federally it’s taxed as unrecaptured Section 1250 gain, at a maximum rate of 25% (IRS Topic 409). If you’ve been renting a Maui condo as a long-term or vacation rental, ask your CPA to calculate this before you set a price.

Does HARPTA withholding apply when I sell?

If you’re a nonresident seller, the buyer must withhold 7.25% of the amount realized under HARPTA and send it to the Hawaiʻi Department of Taxation within 20 days of the transfer. That’s a prepayment, not the final tax. Resident sellers give the buyer Form N-289 to claim the exemption. If your gain is fully excluded under Section 121, Form N-288B (filed at least 10 working days before closing) can reduce or eliminate the withholding. For foreign sellers, federal FIRPTA withholding is generally 15%. I covered the closing-cost side in more detail in my guide to conveyance tax, HARPTA and FIRPTA when selling a Maui home.

Is Congress eliminating capital gains tax on home sales?

Not as of mid-October 2026. The No Tax on Home Sales Act (H.R. 4327), introduced July 10, 2025, would end federal capital gains tax on main-home sales, but it was referred to the House Ways and Means Committee and hasn’t advanced. I’d plan around current law.

My Take: What I’m Telling Maui Sellers About Capital Gains

When a long-time owner asks me about taxes before listing, the first thing I tell them is to talk with their accountant. They also need to work out whether HARPTA or FIRPTA applies to them, and let me know whether a 1031 exchange is something they’re considering. But the most important thing is to plan this well with your tax advisor, so you’re in the best position tax-wise before the home goes on the market.

From there, I suggest getting your numbers before you pick a list date: your purchase price, the receipts for improvements that add to your basis, any depreciation if you ever rented, and your realistic sale price based on recent comparable sales. A seller who bought decades ago may be looking at gain well above $500,000, and the tax on that excess can change whether selling now makes sense.

Timing is the second lever. If you’re a few months short of the two-year test, waiting could be worth a lot of money. If you moved out and started renting, keep the five-year window in mind, because once you’ve been out for more than three years you lose the ability to meet the two-out-of-five test. If you’re trading one rental for another, a 1031 exchange may fit better; I explained that in my post on 1031 exchanges for Maui condo owners.

FAQ

Is Hawaiʻi’s capital gains tax rate going up?
Not for 2026 sales. Bills to raise the 7.25% cap didn’t pass in 2026. The new 13% bracket under Act 24 applies to ordinary income starting in 2027.

Do I pay capital gains tax on a Maui second home?
A second home doesn’t qualify for the Section 121 exclusion, so the full gain is generally taxable, and the 3.8% net investment income tax may apply.

How long do I have to live in my Maui home to avoid capital gains tax?
Generally at least 24 months during the five years before the sale, plus 24 months of ownership, to exclude up to $250,000 or $500,000.

Ask Benjamin

If you’re thinking about selling and want to know what your Maui home might sell for so your CPA can estimate the tax, I’m Benjamin Finnerty, and I’m happy to pull recent comparable sales for you. Call or text 808-481-9748 or email benjamin@the808team.com.

Sources: IRS Publication 523 and Topics 701, 409 and 559; IRS Rev. Proc. 2025-32 and IR-2025-103; IRS NIIT Q&A; Hawaiʻi Department of Taxation (Form N-103 instructions, Tax Facts 2010-1 on HARPTA); Hawaiʻi State Legislature (SB3125 CD2, 2026 Acts list); Bloomberg Tax (May 22, 2026); Kiplinger (Mar. 2026); Maui Now (Oct. 9, 2026), citing REALTORS® Association of Maui data.