If you're considering selling a property in Hawaii, it's essential to be aware of the tax implications that may come into play. Two important tax withholdings to understand are HARPTA and FIRPTA, which can impact sellers in Hawaii, especially those who are not U.S. citizens or residents. In this blog post, we'll break down what HARPTA and FIRPTA are, who they apply to, and what sellers need to know about these tax withholdings.
HARPTA (Hawaii Real Property Tax Act)
HARPTA is a state law in Hawaii that requires a withholding of 7.25% of the gross proceeds from the sale of Hawaii real property by non-resident persons or entities. The purpose of HARPTA is to ensure that non-resident sellers pay any state income taxes they may owe on the sale of Hawaii real estate. Sellers subject to HARPTA include non-resident individuals, corporations, partnerships, and trusts.
It's important to note that HARPTA applies to both residential and commercial properties in Hawaii. Sellers who are subject to HARPTA must file Form N-288C, "Hawaii Real Property Tax Withholding Certificate," with the Hawaii Department of Taxation to request a reduced withholding amount based on their estimated Hawaii income tax liability.
FIRPTA (Foreign Investment in Real Property Tax Act)
FIRPTA is a federal tax law that applies to the sale of U.S. real property interests by foreign persons or entities. Under FIRPTA, a withholding of 15% of the sales price is required to ensure that any potential U.S. tax liability from the sale is covered. Like HARPTA, FIRPTA aims to capture any taxes owed by non-resident sellers on their gains from the sale of U.S. real property.
Sellers subject to FIRPTA include non-resident aliens, foreign corporations, partnerships, and trusts. However, there are certain exemptions and reduced withholding rates available under FIRPTA, such as for sales of a personal residence below a certain price threshold and for sellers who obtain a withholding certificate from the IRS to lower the withholding amount.
Navigating HARPTA and FIRPTA as a Seller
For sellers in Hawaii who may be subject to HARPTA or FIRPTA, it's crucial to work with experienced real estate and tax professionals who can guide them through the process. Sellers should consider consulting with a real estate agent, tax advisor, and possibly an attorney to ensure compliance with these tax withholdings and to explore any available exemptions or reduced withholding options.
Additionally, sellers should plan for these potential tax withholdings when calculating their expected proceeds from the sale of their Hawaii property. Understanding and addressing HARPTA and FIRPTA requirements in advance can help sellers avoid surprises and ensure a smooth transaction.
In conclusion, sellers in Hawaii should be aware of the HARPTA and FIRPTA tax withholdings that may apply to the sale of their property, especially if they are non-resident individuals or entities. By seeking professional guidance and understanding the implications of these tax withholdings, sellers can navigate the process with confidence and compliance.
Remember, the information provided in this blog post is for general informational purposes only and should not be considered as tax or legal advice. Sellers should always consult with qualified professionals for personalized guidance on their specific tax situations.
Feel free to reach out to us for personalized support. We have great relationships with experts who can help you navigate the HARPTA and FIRPTA process.