Updated September 2019.
After a few surf posts on the blog, I thought it would be a good time to get back to business and the world of real estate. We are often asked by foreign and non-Hawaii resident buyers and sellers whether there is anything we should be aware of when purchasing or selling a home in Hawaii. The answer to that question is yes. HARPTA is a law that requires absentee owners to withhold a percentage of their proceeds from the sale of their home at close of escrow. As of 2018, HARPTA law calls for a 7.25% withholding of gross sales price. The law was created to account for capital gains taxes. Prior to the law, the only means the state had to account for capital gains from non residents was if the seller were to file state taxes the year that they sold the home. Other states such as California have enacted similar laws.
There is a similar federal law on the books for foreign sellers of real estate. As of February 17, 2017 FIRPTA now withholds 15 percent of the gross sales price of a property owned by a foreign national. As with HARPTA, the intent of the withholding is to ensure that taxes are paid on the sale of real estate. One thing where HARPTA and FIRPTA are different, is that FIRPTA withholdings are also applicable for foreign persons doing a 1031 exchange.
While it is important that we make foreign persons and absentee owners aware of Hawaii and Federal tax laws, we also recommend that they seek the advice and counsel of experts. If you have any questions on HARPTA or FIRPTA consult your attorney or tax advisor. If you have questions about FIRPTA and 1031 exchanges, contact your 1031 Exchange Accommodator and/or your tax advisor.
For relevant forms, check out the state provided HARPTA forms and federally provided FIRPTA forms.
The State of Hawaii, Department of Taxation created a document titled “Understanding HARPTA” in October of 2010 that may also be of interest. Another good HARPTA reference document.
