View towards Molokai from Pineapple Hill in Kapalua, Maui. 

Congress Confirms 1031 Exchanges Are Here to Stay — What Real Estate Investors Need to Know (July 2025)

In a significant move for real estate investors, Congress passed a tax reform package in July 2025 that reaffirms and preserves Section 1031 of the Internal Revenue Code. This section, which allows real estate investors to defer capital gains taxes by reinvesting proceeds from one investment property into another, remains fully intact—without new restrictions, caps, or phaseouts. Despite years of speculation that 1031 exchanges might be scaled back, lawmakers ultimately acknowledged the crucial role they play in supporting local economies, property reinvestment, and long-term portfolio growth.

For investors planning to shift capital into the Maui real estate market, this development is timely. With the legislative cloud lifted, mainland sellers now have clarity and confidence to proceed with a 1031 exchange into Hawaii—often leveraging gains from highly appreciated markets in California, Texas, Colorado, and beyond.

So what does a 1031 exchange actually involve? At its core, a 1031 exchange allows you to sell an investment property—your "relinquished property"—and reinvest the proceeds into a "replacement property" of equal or greater value, deferring any capital gains tax in the process. To remain in compliance, you must identify the replacement property within 45 days and close on it within 180 days. A Qualified Intermediary (QI) must hold the funds throughout the process; if you take possession of the proceeds at any point, your exchange will be disqualified.

This strategy isn’t new, but it’s often misunderstood. Many assume that like-kind means you must exchange the same type of property—say, an apartment for another apartment. In truth, the definition is broad: you can exchange nearly any fee-simple real estate held for investment or business purposes for another. A condo in San Diego can become a vacation rental in Kā‚anapali. A duplex in Portland might lead to agricultural acreage in Launiupoko.

While most real estate qualifies, leasehold properties typically do not, due to their time-limited nature [1]. That makes fee-simple property the preferred vehicle for 1031 reinvestment, and nearly all Maui investment property fits the bill.

To clarify a few lingering misconceptions:

  • Myth: You can exchange your primary residence. In fact, 1031 is only for investment or business properties. Personal residences fall under different IRS provisions [2].

  • Myth: You can pocket part of the cash and still defer all taxes. Not quite. Any proceeds not reinvested—called "boot"—are taxable [3].

  • Myth: You can manage the transaction yourself. The IRS requires a QI to hold and transfer funds [4].

  • Myth: You can only exchange one property for one property. Actually, you can exchange one for several or vice versa, provided you meet value and timing rules [5].

Given the scope and flexibility of what qualifies, it’s no surprise that investors continue to use 1031 exchanges to optimize their portfolios. Maui is a particularly attractive destination for this, offering a mix of short-term rental condos, long-term rental homes, agricultural land with development potential, and newer low-maintenance properties.

Title companies like Fidelity National Title Hawaii report frequent use of 1031 exchanges in commercial and multifamily transactions statewide, with Maui among the top destinations [6]. For example, vacation-rental condos in Kā‚anapali that sold for around $700,000 in 2010 are now valued at $1.3 to $1.5 million, and long-term rental properties in Central Maui have experienced consistent 5% to 8% annual appreciation. These trends make Maui a logical reinvestment option for those exiting highly appreciated mainland markets.

For many, a 1031 exchange is not just a single transaction, but part of a long-term strategy. Investors often use a "swap ‘til you drop" approach—reinvesting capital gains over and over until eventually passing properties to heirs, who receive a step-up in basis that can eliminate deferred taxes altogether [8].

If you're considering a 1031 exchange into or out of Maui, I can support you on both ends. I maintain a trusted national referral network of experienced real estate professionals—agents I personally vet for integrity, communication, and market knowledge. Whether you need help selling your relinquished property or acquiring a replacement here in Hawai‘i, I’ll help align your team and timeline for a smooth, strategic transaction. And if you already have a mainland agent, I’m always happy to collaborate directly.

With the new legislation in place, the path forward is clear. Section 1031 remains an effective tool for deferring taxes and repositioning real estate wealth. Maui continues to offer strong fundamentals, rental demand, and long-term value. If you’re ready to explore what’s possible, let’s talk about your next move.

Citations

[1] First American Exchange, “Does a Leasehold Interest Qualify for a 1031 Exchange?”
https://www.firstexchange.com/resources/faq/does-leasehold-interest-qualify-1031-exchange

[2] IRS Topic No. 701: Sale of Your Home
https://www.irs.gov/taxtopics/tc701

[3] Asset Preservation, Inc., “What is Boot?” (FAQ section)
https://apiexchange.com/1031-exchange-terminology/

[4] Federation of Exchange Accommodators, “Role of the Qualified Intermediary”
https://www.1031.org/faq

[5] IRS 1031 Like-Kind Exchanges Fact Sheet
https://www.irs.gov/newsroom/like-kind-exchanges-under-irc-code-section-1031

[6] Fidelity National Title Hawai‘i, “1031 Exchange Services Overview”
https://www.fidelityhawaii.com/Customers/Service-Detail-Pages/1031-Exchange

[7] Hawaii Information Service MLS Data via RAM (Realtors Association of Maui), Historical Sales Records, 2010–2025

[8] National Association of Realtors®, “1031 Exchanges and Estate Planning”
https://www.nar.realtor/taxes/1031-like-kind-exchanges

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