HARPTA
Stands for Hawaii Real Property Tax Act. It requires a withholding of 7.25% of the amount realized (sales price) to be remitted it to the Department of Taxation within 20 days of closing for possible capital gains tax owed unless an exemption applies. Once an accepted offer is reached and escrow is opened, the escrow company will collect information from the seller and make this withholding. It will appear on the final seller statement and is often the most significant seller line item. HARPTA is not an additional tax. It is a withholding to ensure that taxes owed are eventually paid. Once the seller files their taxes, if a refund is owed, eventually the seller would get the refund. There are very few exemptions for HARPTA. There is an exemption for all Hawaii residents, those selling at a verified loss, and those enacting a 1031 exchange. Check with the Hawaii Department of Taxation and your CPA for guidance.
FIRPTA
Stands for Foreign Investment in Real Property Tax Act. This applies to foreign sellers (outside of the USA). It requires a withholding of 10% or 15% of the amount realized (sales price) and remitted to the IRS within 20 days of closing unless an exemption applies. The withholding percentage will depend on the sales price and whether the buyer or the buyer’s family member intends to use the property as a residence. Under federal law it is the buyer’s responsibility to determine if the seller is a foreigner subject to a FIRPTA withholding. The escrow company will collect information from the seller and make the withholding. Foreign sellers will be subject to both HARPTA & FIRPTA withholdings.
