HARPTA is an acronym for the Hawaii Real Property Tax Act, a state law.  In order to promote a greater level of compliance by non-residents of Hawaii (whether U.S. persons or foreigners) in reporting income from sale of real property located in Hawaii, HRS § 235-68 requires every buyer of Hawaii real estate to deduct, withhold, and pay to the Hawaii Department of Taxation 5% of the amount realized by the seller of transferor of Hawaii real estate.

 

Under the Hawaii withholding requirement, the buyer or transferee of any Hawaii real estate is required to (i) withhold and deduct a tax equal to 5% of the amount realized by the seller or transferor upon the disposition of the property.

 

 

FIRPTA is an acronym for the Foreign Investors Real Property Tax Act of 1980, and is a federal law that provides that foreign investment in U.S. real estate would be subject to U.S. capital gains on dispositions of U.S. real property interests (defined as (i) any interest in U.S. real property or (ii) any interest in a U.S. corporation in which 50% of its assets constitute U.S. real property interest). 

 

Under the FIRPTA withholding provisions of Code Section 1445, the buyer or transferee of any U.S. real property is required to (i) withhold and deduct a tax equal to 10% of the amount realized by seller or transferor upon the disposition of the property regardless of the amount of cash otherwise present in the transaction.

 

ITIN Guidance for Foreign Buyers/Sellers of U.S. Property:  Foreign buyers and sellers of U.S. real property interests need Individual Taxpayer Identification Numbers (ITINs) to request reduced tax withholding when disposing of the property interest, and to pay any required withholding.  Individuals who do not qualify for Social Security Numbers (SSN) may obtain an ITIN to meet the requirement to supply a Taxpayer Identification Number (TIN).

 

Please contact your tax professional to identify procedures where TINs are required.

 

The above information provided from Title Guaranty Hawaii.  Information deemed reliable, but not guaranteed.  Always consult your tax professional.

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  • Dennis Mihalka

    says:

    I understand the 5% but it is not clear if the 5% applies to the total price of the property sold or if it only applies to the “gain”. If it only applies to the gain, then how do they define “gain”. For instance, purchase condo for 400,000. Pay points, closing costs, etc …$2000. Need to improve condo and invest in windows, floors, paint, furniture etc for $66,000. Sell condo for $500,000 and pay real estate commission of 6% or $30,000 plus escrow fees and costs of $2000. Adding all actual costs, $2000 plus $66,000 plus $30000, plus $2000, the total of costs is $100,000. Does gain mean the new sales price less costs listed above less the price of the original purchase? If so, in this case there is no gain as the expenses equal the price differential…ie $500,000 minus costs $100,000 equal $400,000 which is the original purcahse price.

    If there was a positive difference of $10,000, is this where the 5% tax is applied? Do I read that the withhold is on the total price or limited to the gain and if it is the gain, how is that determined or is it determined with a tax filing which documents expenses and therefore demonstrates no gain therefore the withheld tax would be returned?

    Thank you for your help on what seems to be not clear.

    Dennis Mihalka

    • admin

      says:

      Aloha Dennis,
      Haarpta is a withholding tax on the total sale price. It is not an additional tax. If there is no gain, then there are forms that can be submitted prior to closing and need to be approved by the State Department of Taxation. In this instance and if time permits, there is no 5% withholding. Usually, there is not enough time to submit and obtain approval so the withholding occurs at closing and then would be returned in the event of no gain. You are correct on the math of a “no gain” transaction. If you have further questions, my direct line is 808-651-0028.
      Barbara

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