Selling Maui property can trigger both federal and Hawaii capital gains tax. Non-resident sellers also face HARPTA withholding, which is 7.25% of the sale price, and foreign sellers face FIRPTA at 15%. The good news: a primary residence may exclude $250,000 or $500,000 of gain, and investors can defer gains with a 1031 exchange.
- Federal capital gains are taxed at 0%, 15%, or 20% depending on your taxable income, and a 3.8% Net Investment Income Tax can apply at higher incomes.
- The Section 121 exclusion lets a single filer exclude up to $250,000 of gain, and married couples up to $500,000, on a primary residence that passes the 2-of-5-year test.
- Hawaii also taxes capital gains, with an alternative long-term rate of 7.25% and a top ordinary rate of 11%.
- HARPTA withholds 7.25% of the gross sale price when a non-resident sells, per the Hawaii Department of Taxation; it’s refundable, not an extra tax.
- FIRPTA withholds 15% from foreign sellers, and a 1031 exchange can defer gains on investment property only.
What capital gains tax will I owe when I sell on Maui?
When you sell on Maui, you may owe federal and Hawaii capital gains tax on your profit. For 2026, federal long-term gains are taxed at 0% on taxable income up to $49,450 single or $98,900 married filing jointly; 15% up to $545,500 single or $613,700 MFJ; and 20% above those levels (IRS Revenue Procedure 2025-32, 2025).
On top of those brackets, a Net Investment Income Tax of 3.8% may apply when your modified adjusted gross income exceeds $200,000 single or $250,000 married filing jointly, according to IRS Topic 559. This isn’t indexed for inflation, so high-value Maui sales can push sellers into it.
Then there’s Hawaii. The state taxes capital gains too. There’s an alternative long-term capital gains tax rate of 7.25%, while Hawaii’s top ordinary income tax rate is 11% (Hawaii Department of Taxation). Which figure ultimately applies depends on your full return, so confirm the specifics with your CPA.
Why does this matter so much here? Maui’s luxury price points mean even one sale can move you across brackets. A property that’s appreciated for years carries a large gain, and the difference between the 15% and 20% federal tiers, plus Hawaii’s layer, can add up to real money. Run your numbers before you list, not after you close.
My complete Maui seller’s guide walks through pricing and timing; this post focuses purely on the tax piece.
Can I avoid capital gains on my primary residence?
If Maui is your main home, you may exclude a large chunk of your gain. Under the Section 121 exclusion, a single filer can exclude up to $250,000 of capital gain and married couples filing jointly up to $500,000, provided you owned and used the home as your main residence for at least 24 months out of the last 5 years (IRS Topic 701, IRS).
That ownership-and-use rule is often called the “2-of-5-year” test, and you can generally use the exclusion once every two years. Notably, this exclusion has been unchanged since 1997 and isn’t indexed for inflation, per IRS Publication 523. So while $500,000 sounded enormous decades ago, today’s Maui values can easily exceed it.
Here’s the practical wrinkle I see often. A second home or vacation property does not qualify, because it isn’t your main residence. If you’ve split time between the mainland and Maui, the question of which home is truly “main” becomes important, and it’s exactly the kind of detail a CPA should review with you.
What if your gain is larger than the exclusion? You exclude what you can, then the remaining gain is taxable under the brackets above. Solid records of your purchase price and improvements matter here, since they raise your cost basis and shrink the taxable gain.
What is HARPTA, and will it apply to me?
HARPTA stands for the Hawaii Real Property Tax Act, and it surprises many sellers. When a non-Hawaii-resident sells Hawaii real property, 7.25% of the amount realized, meaning the gross sales price and not just the gain, is withheld for Hawaii tax (Hawaii Department of Taxation). This 7.25% rate has been in place since September 2018.
Read that again: the withholding is on the gross price, not your profit. So even if your actual Hawaii tax bill is modest, the amount held back at closing can be much larger. That’s a cash-flow shock if you weren’t expecting it.
The mechanics run through a few forms. Forms N-288 and N-288A report and transmit the withholding. A seller can file N-288B to request reduced or eliminated withholding when the true tax owed is lower, and form N-289 certifies Hawaii residency, which exempts a resident seller. If you’re a Hawaii resident, N-289 is your friend.
The most important reassurance: HARPTA is a withholding, not a separate tax. Because it’s often more than you actually owe, the excess is refundable when you file your Hawaii return. In practice with non-resident sellers, the surprise is rarely the tax itself; it’s seeing a big number held at closing and not realizing a refund follows after filing. Planning ahead softens that.
What about foreign sellers? Understanding FIRPTA
Foreign sellers face an additional federal layer called FIRPTA. When a foreign person sells U.S. real property, 15% of the amount realized is generally withheld for federal tax, though lower rates can apply for certain buyer-occupied purchases (IRS FIRPTA Withholding, IRS). Like HARPTA, this is withholding against your eventual tax, not necessarily your final bill.
Now stack the two. A foreign, non-resident owner selling on Maui can face FIRPTA’s 15% federal withholding and HARPTA’s 7.25% Hawaii withholding at the same time. Combined, that’s a meaningful slice of the gross price held back at closing before any refund. International sellers should map this out early so the net-proceeds figure isn’t a closing-day surprise.
Does foreign ownership change your right to refunds or the underlying tax math? The withholding is a prepayment, and your actual liability is settled when you file. Cross-border returns get complicated fast, so a CPA experienced with foreign sellers is worth their fee here. I can coordinate timing on the real-estate side; the tax filings belong with your professional.
Can a 1031 exchange defer my taxes?
For investors, a 1031 exchange is one of the most powerful tools available. It lets owners defer capital gains by reinvesting proceeds into another investment or business property. The catch is strict: it applies to investment or business property only, never a primary residence, per the IRS Form 8824 instructions (IRS).
The timeline is unforgiving, so mark your calendar. You must identify replacement property within 45 days of selling and close on it within 180 days. A Qualified Intermediary must hold the funds in between, because if the cash touches your hands, the exchange is blown. These deadlines don’t pause for holidays.
Hawaii conforms to the federal 1031 rules, including the same 45-day and 180-day timelines. But here’s the nuance many sellers miss: HARPTA withholding can still apply to a 1031 sale unless the seller files for an exemption using form N-288B (Hawaii Department of Taxation). A perfectly structured federal exchange can still trigger Hawaii withholding if you skip that step.
This matters most for Maui’s investors and vacation-rental owners. If you’ve held an income property and want to roll into another, a 1031 can defer the gain, and looking at investment properties on Maui early helps you line up a replacement inside that 45-day window. Coordinating the agent timeline with your Qualified Intermediary is where deals succeed or stumble.
Do I owe Hawaii GET when I sell my home?
No. This is a persistent myth worth busting clearly: Hawaii’s General Excise Tax (GET) does not apply to an individual selling their own home. A one-off sale of a personal residence is not a taxable business activity, according to the Hawaii Department of Taxation. You are not handing the state a slice of your entire sale price under GET.
So where does GET actually show up in a real-estate transaction? It applies to real-estate brokerage commissions and to rental or business income. In other words, the brokerage pays GET on its commission, and a landlord pays GET on rental revenue, but a homeowner selling their own house does not owe GET on the sale.
Why does this confusion persist? Hawaii buyers and sellers hear “GET” constantly because it touches so many transactions across the islands. Sellers sometimes arrive convinced they owe GET on their full sale price, and the relief when I explain otherwise is real. If you run a short-term rental, though, GET and other rules do apply to that income, so check with your CPA.
How to plan ahead
The single best move is to assemble your team early. Engage a CPA and your agent before you list, not after an offer lands. Because HARPTA withholds 7.25% of the gross price for non-residents (Hawaii Department of Taxation), knowing your numbers up front prevents a closing-day shock and keeps your net-proceeds estimate honest.
If you’re a non-resident seller, order a HARPTA analysis before closing. Filing N-288B to request reduced withholding takes lead time, and starting late means more cash tied up until your refund arrives. A few weeks of planning can free up a lot of capital at the closing table.
For investors, think about 1031 timing from day one. The 45-day identification clock starts the moment you sell, so having your Qualified Intermediary and candidate replacement properties lined up beforehand is what makes an exchange work. Rushing the back half of a 180-day window is how good intentions miss the deadline.
| Rule | Rate / Amount | Who it applies to |
|---|---|---|
| HARPTA | 7.25% of the gross sale price (withheld, refundable) | Non-resident sellers of Hawaii property |
| FIRPTA | 15% of the amount realized (withheld) | Foreign sellers of U.S. property |
| Section 121 exclusion | $250,000 single / $500,000 married filing jointly | Primary-residence sellers (2-of-5-year test) |
| 1031 exchange | Defers the gain (45-day ID, 180-day close) | Investment / business property only |
Is anything changing soon? For context, Hawaii’s Act 46 (2024) was a large income-tax cut that widened income tax brackets and raised the standard deduction, phasing in from 2024 through 2031. Importantly, it did not change the capital gains rate or the 11% top rate, per the Hawaii Department of Taxation. Still, tax law evolves, so verify current rules with your CPA before you act.
Frequently Asked Questions
Do I pay Hawaii tax if I live on the mainland?
Yes. Hawaii taxes capital gains on Hawaii real property regardless of where you live, and if you’re a non-resident, HARPTA withholds 7.25% of the gross sale price at closing per the Hawaii Department of Taxation. That withholding is refundable when you file, so confirm your actual liability with a CPA.
Is HARPTA an extra tax or a refundable withholding?
HARPTA is a withholding, not a separate tax. Hawaii holds back 7.25% of the gross sale price from non-resident sellers as a prepayment toward Hawaii tax (Hawaii Department of Taxation). Because it’s often more than you owe, the excess is refundable after you file your Hawaii return. A CPA can confirm your figures.
Can I do a 1031 exchange on my Maui vacation home?
It depends on how the property is used. A 1031 exchange applies to investment or business property only, never a primary residence, per the IRS Form 8824 instructions. A vacation home used as an investment may qualify, but the facts matter, so review your specific use and rental history with a CPA before relying on it.
How much is capital gains tax in Hawaii?
Hawaii taxes capital gains, with an alternative long-term capital gains tax rate of 7.25%, while the top ordinary income tax rate is 11% (Hawaii Department of Taxation). Which figure applies depends on your full return. Federal tax of 0%, 15%, or 20% applies on top, so ask your CPA to model your specific situation.
Does the $500,000 exclusion apply to a second home?
No. The Section 121 exclusion of $250,000 single or $500,000 married filing jointly applies only to a main residence that meets the 2-of-5-year ownership-and-use test, per IRS Topic 701. A second home or vacation property doesn’t qualify. If you split time between homes, ask your CPA which one counts as “main.”
Do foreign sellers pay both FIRPTA and HARPTA?
They can. A foreign, non-resident seller may face FIRPTA’s 15% federal withholding (IRS FIRPTA Withholding) and HARPTA’s 7.25% Hawaii withholding at the same time. Both are prepayments against your eventual tax, not final bills, so a CPA experienced with cross-border sales should review your situation.
The bottom line
Selling on Maui involves real tax considerations: federal and Hawaii capital gains, the Section 121 exclusion for a primary residence, HARPTA and FIRPTA withholding for non-resident and foreign sellers, and 1031 exchanges for investors. None of it has to be a surprise. With the right team and a little lead time, you can plan around every one of these rules and protect your net proceeds.
One more reminder: this article is general educational information, not tax or legal advice, so please consult a Hawaii-licensed CPA or tax attorney before making decisions. When you’re ready to talk through your sale, I’m here to coordinate the real-estate side and bring in the right professionals. You can also estimate your net proceeds with a valuation to start with a clear number in hand.
Chelsea Dimin is the #1 Compass agent in Hawaii by volume and ranked #13 statewide (WSJ/RealTrends), with more than $300 million in sales and 17 years living and working on Maui. The first woman to sell a $32M+ property on the island, she specializes in luxury homes across Wailea, MÄkena, and South Maui. License #RB-22400.