The State of Hawaii Department of Taxation has announced that the rate will increase from 5% to 7.25% of the sales price for the withholding of tax on the sale of Hawaii properties by non-Hawaii resident persons/entities on or after September 15, 2018. This withholding is commonly known as “HARPTA”.
According to Tom Yamachika, President of the Tax Foundation, HARPTA is not a tax, but rather “a means for the state to collect capital gains taxes from absentee owners.”
The increase was anticipated since the Federal government increased “FIRPTA” (withholding for foreign sellers) from 10% to 15% effective for closings on or after February 16, 2016.
Exemptions to HARPTA
- If the sellers are conducting a 1031 exchange
- If the seller of the property is selling it at a loss or realized a gain of less than 7.25%
- If the sales price is less than $300K and the property has been used as a principal residence for the past year
What is HARPTA?
HARPTA stands for the Hawaii Real Property Tax Act. The State of Hawaii’s Department of Taxation offers this definition: “HARPTA legislation requires a purchaser to withhold a percentage of the sales price when acquiring Hawaii real property from a nonresident seller and remit the amount withheld directly to the State.”
The withholding is intended to guarantee the collection of Hawaii income tax that may be the obligation of the nonresident seller. Some nonresidents who sold their property in the past were either unaware of the obligation or failed to file a Hawaii income tax return after the sale.