HARPTA and FIRPTA

HARPTA (Hawaii Real Property Tax Act) and FIRPTA (Foreign Investment in Real Property Tax) relate to tax payments due from sellers who are not residents of Hawaii or of the United States.

HARPTA requires every buyer of Hawaii real property to deduct and withhold from the non-resident seller's proceeds, 7.25% of the gross amount realized on the sale to be applied to any Hawaii income tax due from the seller with regards to the sale of the property.

A buyer would be exempted from this requirement if the seller furnishes the buyer with an affidavit stating that the seller is a resident (includes resident aliens), together with his taxpayer’s identification number. There are a few exceptions to the rule. Out-Of-State Corporations registered to do business in Hawaii are exempt from HARPTA and sellers doing an IRC 1031 Tax Deferred Exchange are exempt from HARPTA. Sellers who lived in the property (as principal residence) for the year preceding the sale and realize $300,000 or less on the sale of their home are exempt from HARPTA.

FIRPTA is an Internal Revenue Service withholding tax applicable to foreign sellers in a real estate transaction. Like HARPTA, the Buyer (Transferee) is responsible for withholding. However, in this case the withholding is equal to 15% of the gross sale price. The Escrow Company must send the withheld funds to the IRS within twenty days of recordation.

Just like HARPTA, a Seller may apply for an exemption from FIRPTA prior to recordation. We have seen Sellers pay HARPTA and FIRPTA in the same transaction.

Because of the strict deadlines and penalties associated with these laws, your agent and your escrow company will make sure you are fully compliant.