1031 Exchanges in Hawaii: Rules, Taxes, Insurance, and the Long Arc

A Shop 1031 research page. Reviewed 2026-06-03. Every claim sourced; sources collected at the foot of the page.

Hawaii is a HARPTA-withholding state with a fee-versus-leasehold ownership distinction, not an unstructured island-paradise transactional environment. The distinction matters because Hawaii imposes a 7.25 percent withholding under the Hawaii Real Property Tax Act (HARPTA) on every sale of Hawaii real property by a nonresident, with §1031 exemption available only through proper Form N-289 paperwork delivered at or before closing. Hawaii is also one of the few jurisdictions where leasehold rather than fee-simple title is common in significant inventory, and the Hawaii Land Court system governs title for a substantial portion of registered land. Hawaii conforms to federal §1031 through Hawaii Revised Statutes Chapter 235. Each of these is independently sourceable.

This page is the working guide. The federal §1031 floor, Hawaii’s HARPTA withholding and §1031 exemption mechanic, the conveyance tax, the property-tax structure under the four counties, the leasehold-versus-fee-simple distinction, the Land Court system, the Pacific hurricane and Big Island lava insurance picture, the demographic trend, and the unique considerations a Hawaii exchanger should clear before identifying replacement.

§1. 1031 mechanics in Hawaii

The federal floor applies in Hawaii the same way it applies in every state. 26 U.S.C. §1031 and 26 C.F.R. §1.1031(k)-1 establish the deferral framework. ^{1 2}

Hawaii fully conforms to the federal §1031 treatment at the state income tax level. The conforming provision is in Hawaii Revised Statutes Chapter 235, with the Hawaii Department of Taxation administering income tax conformity. Recognized boot is taxed at the Hawaii graduated rate, with the top marginal bracket at 11 percent. There is no separate Hawaii capital gains rate, though Hawaii provides an alternative capital gains tax rate for individuals with specified asset categories. ³

HARPTA, the Hawaii Real Property Tax Act under Hawaii Revised Statutes Chapter 235-68, requires the buyer to withhold 7.25 percent of the gross sale price on the sale of Hawaii real property by a nonresident seller. The withholding rate is among the highest in the country for nonresident real property withholding. The §1031 exemption is available through Form N-289 (Certification of Exemption for Non-Recognition Provisions), which the seller delivers to the buyer at or before closing. Form N-289 certifies that the seller is exchanging under §1031 and is not required to recognize gain. The buyer must receive a properly completed Form N-289 to avoid the withholding obligation. An alternative path is Form N-288B (Application for Withholding Certificate) submitted to the Department of Taxation for a reduction or waiver before closing; the N-288B process takes time and should be initiated well before the scheduled closing. ^{4 5 6}

Hawaii imposes a conveyance tax under Hawaii Revised Statutes Chapter 247 at graduated rates that vary by consideration and by whether the property is purchaser-occupied as a principal residence. For non-principal-residence transactions, the conveyance tax runs from $0.15 per $100 of consideration on transactions under $600,000 up to $1.25 per $100 on consideration of $10,000,000 or more. On a $5,000,000 Hawaii commercial acquisition, the conveyance tax runs roughly $20,000 to $45,000 depending on the applicable bracket. The grantor (seller) is statutorily responsible. There is no §1031 exemption from the conveyance tax. ⁷

Hawaii imposes no state-level registration or bonding regime on Qualified Intermediaries. Federal §1031 rules apply.

Hawaii is an escrow-and-attorney state. Closings are commonly handled by Hawaii title companies operating with Hawaii-licensed attorney supervision, particularly on Land Court and leasehold transactions.

§2. Property tax in Hawaii

Hawaii has the lowest effective property tax rate in the country at approximately 0.27 percent of owner-occupied housing value, well below the 1.02 percent national median. The structural mechanics are governed by Hawaii Revised Statutes Chapter 246 and by the property tax ordinances of each of Hawaii’s four counties (City and County of Honolulu, County of Maui, County of Hawaii, and County of Kauai), each of which sets its own classification, assessment, and rate structure. There is no state-level property tax. ⁸

For an exchanger acquiring Hawaii commercial property, the operative property-tax framework depends on the county. The City and County of Honolulu classifies property into multiple categories including Hotel and Resort, Commercial, Industrial, Residential, Apartment, and others, with different rates per class. Maui, Hawaii, and Kauai Counties each use their own classification system. Property is generally assessed at full fair market value (with adjustments by county), and the rate per class produces the cash tax liability.

For investment property classified as Hotel and Resort or Commercial in Honolulu, year-one property tax is meaningfully higher than for Residential property at the same fair market value. The property classification at acquisition is therefore central to the underwriting.

Harlow’s note on unit economics. On a $5,000,000 Hawaii commercial acquisition, year-one property tax varies materially by county and by classification, with Honolulu Hotel and Resort property running on the higher end (roughly $35,000 to $60,000) and Residential or Apartment classifications running lower. Confirm the county property classification at acquisition with the county Department of Finance or real property assessment division before identification.

§3. Property insurance in Hawaii

Hawaii property insurance has three distinct exposure regimes. Hurricane exposure dominates the Pacific catastrophe picture across all islands, with Hurricane Iniki (1992) and subsequent storms setting the carrier-market benchmark. The Big Island faces additional volcanic and lava exposure, with the 2018 Kilauea Lower Puna lava flows reminding the carrier market that the lava-flow zone underwriting is real. Earthquake exposure is moderate but real across the chain.

The Hawaii Hurricane Relief Fund, established after Iniki, was a residual market mechanism that was wound down after the private market re-entered the state in the early 2000s. Currently, the private market handles underwriting, with E&S lines filling gaps in higher-risk zones. The Hawaii Insurance Division regulates carrier conduct. ⁹

For Big Island property, the Lava Flow Hazard Zone classification (administered by the U.S. Geological Survey and recognized by the Hawaii County government) is the operative underwriting variable. Property in Lava Flow Hazard Zones 1 and 2 (highest risk) faces meaningfully higher insurance cost and carrier reluctance; Zones 3 and lower face more functional underwriting.

Harlow’s note on unit economics. For a $5,000,000 Hawaii commercial property in the urban Honolulu corridor, expect property-insurance expense in the range of 0.5 to 1.0 percent of insured value. For Big Island property in or near a Lava Flow Hazard Zone, the range can run materially higher and the carrier roster narrows. Bind from a quote that explicitly addresses hurricane named-storm deductible structure and Lava Flow Hazard Zone classification.

§4. Demographic trends

Hawaii’s population stood at approximately 1.45 million as of 2025 Census estimates, with modest negative net domestic migration offset by international migration and natural increase. Hawaii has recorded net domestic out-migration in most years of the past decade, with the dominant outflow destinations being the West Coast, the Mountain West, and Texas. ^{10 11}

Median household income in Hawaii was approximately $99,000 in 2024 per Federal Reserve-published Census American Community Survey estimates, materially above the national median, reflecting the high cost of living in the state. The Bureau of Economic Analysis reports Hawaii per-capita personal income above the national average but with the state ranking among the highest cost-of-living jurisdictions on multiple aggregate indices. ^{12 13}

The major Hawaii markets relevant to 1031 exchangers are the City and County of Honolulu (Oahu, approximately 990,000 population and the deepest commercial market by a wide margin), Maui County (approximately 165,000, the deepest hospitality and second-home market), the County of Hawaii (Big Island, approximately 205,000), and Kauai County (approximately 73,000). Each carries a distinct asset-class profile. Honolulu concentrates the deepest institutional commercial market; Maui concentrates hospitality and resort-residential; the Big Island carries the broadest cap-rate range and the strongest growth signal in industrial and small commercial; Kauai is the most yield-compressed of the small markets.

§5. Unique legal and financial considerations

The first is HARPTA paperwork coordination. Form N-289 must be properly completed and delivered to the buyer at or before closing. Missed paperwork triggers 7.25 percent withholding on the gross sale price, which can be a six- or seven-figure cash hit on a meaningful Hawaii transaction.

The second is the fee-versus-leasehold distinction. Significant Hawaii inventory, particularly in resort and second-home communities, is held in leasehold rather than fee simple. Leasehold §1031 transactions are subject to additional federal requirements (the leasehold must have at least 30 years of unexpired term, including options, to qualify as like-kind to fee simple under IRC §1031). For Hawaii exchangers, the leasehold-versus-fee determination is a first-order acquisition question.

The third is the Hawaii Land Court system under Hawaii Revised Statutes Chapter 501. The Land Court administers Torrens-system registered titles in Hawaii. A substantial portion of Hawaii land is registered through the Land Court, with title certified rather than merely insured. Land Court transactions follow different procedural requirements than Regular System transactions. Counsel review is appropriate.

The fourth is the General Excise Tax (GET), which is Hawaii’s broad-based transaction tax in lieu of a conventional sales tax. The GET runs 4 percent statewide with county surcharges adding up to 4.712 percent on Oahu. The GET applies to gross rental receipts, including commercial rental income, and is a meaningful operating-expense and pricing variable for commercial property. Tenants typically reimburse the GET on rental income, but the structure should be confirmed in the lease and the underwriting.

The fifth is the Native Hawaiian and Hawaiian Homes Commission Act overlay, which applies to specific parcels and to land in the Kuleana tradition. Counsel review is appropriate for any rural acquisition.

§6. Closing summary and the work ahead

The Hawaii 1031 exchanger is operating in a market with a clear set of distinguishing features. The federal floor applies; Hawaii fully conforms at a graduated rate topping at 11 percent; HARPTA imposes 7.25 percent nonresident withholding with §1031 exemption only on properly completed Form N-289; the graduated conveyance tax at recording does not exempt §1031; property tax is administered at the four county level with the lowest effective rate in the country but with material class-based dispersion; insurance exposure varies between the urban Honolulu market and Big Island lava-flow zones; demographic growth is roughly flat with continued domestic out-migration; leasehold versus fee-simple title is a first-order question; the Land Court system governs registered titles; the General Excise Tax applies to rental receipts. None of these is a reason to avoid a Hawaii exchange. Each is a reason to underwrite one carefully. The jurisdiction-specific factors above are starting-point context. A state-experienced CRE professional will translate them into deal-specific judgment.

This is the question Shop 1031 was built to compress. Every Hawaii offering memorandum on the platform is normalized to a single schema, underwritten at re-let to the buyer’s specific equity, debt, and DSCR floor, and ranked by Dark Shell Score. For a market with Hawaii’s specific overlay, that compression is decisive because the variables that move outcomes (HARPTA paperwork, county classification, leasehold-versus-fee determination, Land Court versus Regular System title, GET on rental receipts, Lava Flow Hazard Zone classification) are knowable in advance and frequently missed in conventional buy-side workflows.

This page is the working map. The actual exchange is run by people. A Hawaii-licensed real estate attorney, a Hawaii-licensed CPA familiar with §1031, a Qualified Intermediary, and a CRE professional who knows this market and these properties. Shop 1031 is the analytics layer that triages which deals deserve your time. The professionals do the work.

See underwritten Hawaii deals that fit your exchange →

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Shop 1031 is an independent analytics platform. We are not a brokerage, a law firm, a tax advisor, a lender, or a Qualified Intermediary. Every 1031 exchange should be reviewed by a state-licensed real estate attorney, a CPA familiar with IRC §1031, and a QI. Brokerage and advisory services, when used, are provided by independently licensed third parties under separate engagement. This page is research, not advice. The Hawaii-specific surfaces discussed (HARPTA 7.25 percent withholding and the Form N-289 exemption paperwork, leasehold versus fee-simple title determination and the 30-year unexpired term requirement, Hawaii Land Court Torrens-system title, conveyance tax obligation, county property classification at acquisition, General Excise Tax on rental receipts, Lava Flow Hazard Zone insurance binding on Big Island property) each carry material risk if mishandled and should be addressed with a Hawaii-licensed attorney, a Hawaii-licensed CPA, and a Qualified Intermediary before identification, not after.

Federal authority: 26 U.S.C. §1031; 26 C.F.R. §1.1031(k)-1.

Hawaii authority: H.R.S. Ch. 235 (income tax conformity), §235-68 (HARPTA); Ch. 247 (conveyance tax); Ch. 246 (real property tax); Ch. 501 (Land Court); Ch. 237 (General Excise Tax); Hawaiian Homes Commission Act of 1920.

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