A Practical Guide to Navigating HARPTA and FIRPTA in Hawaii

The world of real estate taxes can be complex, particularly when dealing with HARPTA and FIRPTA. Especially true in Hawaii, where these tax laws have unique implications. Let’s break down these critical acronyms and explore their impact.

Understanding HARPTA

Hawaii has HARPTA, known as the Hawaii Real Property Tax Act. In essence, this state law requires that a withholding of 7.25% occurs from the sales price of Hawaii real estate by a non-resident seller. Why does this occur? The state ensures part of the profit from selling real estate stays in Hawaii.

Navigating HARPTA Withholdings

You may wonder, “Do all transactions face a withholding?” Not exactly. Some exceptions exist. For instance, if the sales price is under $300,000 and the property will be the buyer’s primary residence, no withholding occurs. Yet, this scenario often proves rare. Thus, if you plan to sell property in Hawaii as a non-resident, you should anticipate a HARPTA withholding.

Exploring FIRPTA

Next up is FIRPTA. The Foreign Investment in Real Property Tax Act is a federal law. Its primary purpose? To tax foreign persons on dispositions of U.S. real property interests. A hefty 15% of the amount realized on the sale must be withheld under FIRPTA.

FIRPTA’s Influence in Hawaii

FIRPTA can often bring confusion. However, its implications are pretty straightforward. If you’re a foreign investor selling property in Hawaii, you need to account for this withholding. Importantly, you also need to report the transaction to the IRS.

Minimizing the Impact of HARPTA and FIRPTA

You might now be thinking, “How can I reduce these withholdings?” The answer lies in obtaining a withholding certificate from the IRS. This process can lower or eliminate the FIRPTA withholding if the IRS agrees the tax liability is less than the withheld amount. Similarly, a HARPTA waiver may be obtained if the seller can show no tax liability will arise from the sale.

Wrapping Up

HARPTA and FIRPTA might initially appear daunting, but understanding their basics can demystify the process. Consult with a real estate attorney or tax professional to guide you. It’s crucial to remain proactive when dealing with these laws, whether you’re a U.S. resident selling property in Hawaii or a foreign investor navigating FIRPTA regulations.

In conclusion, remember that while the tax landscape may seem complex, the right knowledge and professional assistance can make it manageable. The journey to selling real estate in Hawaii is not without its challenges, but with diligence and careful planning, it’s entirely within reach.